Prepaid Wallet License

How to obtain a Prepaid Wallet License in India?

In a bid to make the payments process fast and easy, the Reserve bank has introduced various measures. One of those measures is Prepaid Wallet or the Payment Wallet. RBI regulates the functioning of prepaid wallets in India. In this article, we shall take a look at the procedure of obtaining prepaid wallet license, but before that, lets’ have a basic understanding of Prepaid Wallets.

Meaning of Prepaid Wallet

Prepaid wallets are methods of online payment instruments for paying for the goods and services procured and to transfer online the money from one bank to another. They facilitate the purchase of goods & services against the value stored on such instruments.

The prepaid instruments can be issued in the form of:

• Magnetic stripe cards;
• Smart cards;
• Mobile accounts;
• Mobile wallets;
• Paper vouchers.

Classification of prepaid wallets in India

In India, prepaid wallets are classified into the following types:

• Closed system prepaid wallets

Closed system wallet is offered by the company to its customers, which can be used to purchase on the online platform where the company operates. E.g., Myntra, cleartrip etc.

• Semi-closed prepaid wallets

This form of wallet is used to buy goods and services and acts as a payment instrument that can be redeemed by an identified merchant that contracts with the issuer to accept the payment instrument. Eg- Paytm, MobiKwik etc.

• Open system prepaid wallet

The money stored in these instruments can be used to make payment for any purchase, and the money can be redeemed at ATM. E.g., Visa cards, master cards etc.

Eligible entities that can obtain Prepaid Wallet License

The following entities are eligible to obtain the prepaid wallet license:

• Scheduled banks and non-banking financial institutions

Those banks that have the RBI approval to provide mobile banking transactions will be permitted to launch mobile based prepaid payment instruments.

• Companies incorporated under the Companies Act

A company which is incorporated under the Companies Act can get this license if it’s permitted according to the object clause of the MOA.

• Entities having Foreign Direct Investment

Such companies should be having a minimum capital as per the guidelines of the FDI policy.

Capital requirements-

• Banks and non-banking financial institutions

The entities that fulfill the capital adequacy requirements as prescribed by the Reserve Bank will be permitted to issue prepaid instruments.

• Companies

Any financial entity registered under the Companies Act 2013, with an objective of financial business seeking payment wallet authorization, should have a minimum net worth of 5 crore rupees.

• FDI entities

Those entities that are governed under the FEMA^[1] who are authorized to issue a foreign exchange, prepaid wallets are exempted from these guidelines. The use of payment instruments will be permitted to current account transactions only, and subject to the limits laid down under the FEM (Current Account Transactions) Rules 2000.  

Steps to obtain Prepaid Wallet License

The following steps should be followed to get the authorization to set up the prepaid payment business:

• Form a company under Companies Act 2013;
• File an application in Form A for approval according to the Regulation 3(2) of Payments and Settlement System Regulations 2008;
• The RBI will screen to verify the eligibility of the applicant;
• If the eligibility criteria is fulfilled, the RBI will issue an “in-principle” approval. The validity of the approval will be 6 months from the date of granting the approval;
• Then the company should submit a satisfactory system audit report to the Reserve Bank in 6 months. In case of failure to do so, the in-principle approval granted by RBI will lapse, and the company can appeal for extension of 6 months in advance, specifying the valid reasons;
• After considering all particulars furnished, the entities will be granted final approval. The company can commence business within 6 months from the date of grant of the certificate of authorization.

Documents required

The following documents should be submitted for obtaining the Prepaid Wallet License:

• Proof of registered office;
• Certificate of incorporation;
• A detailed information regarding the management of the company;
• Statutory audit report;
• Recent audited balance sheet;
• Name and address details of the bankers of the company;
• A detailed report on the principle business of the company;
• Capital amount proposed;
• Sources of funds;
• Any other information/documents required by the Reserve Bank of India.

What are the benefits of Prepaid Wallets?

The benefits of prepaid wallets include:

• Physical wallets run the risk of getting stolen or lost, but prepaid wallets are safe;
• Prepaid wallets eliminate the need to carry change;
• With prepaid wallets, money can be transferred or paid quickly and conveniently as compared to other methods;
• There is no cost for using these wallets;
• Sometimes wallets give incentives and rewards for referral. They may also provide cashback on certain transactions;
• One can easily add money to these wallets for transactions.

Conclusion

Prepaid wallets have become the new normal for many. In these pandemic times, an increasing extent of people are shunning the use of cash and leveraging prepaid wallets for transactions. If you wish to set up prepaid payment business, consider applying for Prepaid Wallet License to be able to issue prepaid wallets.

Read our article:Prepaid Payment Instruments– Say goodbye to your cards