{"id":3528,"date":"2017-08-21T16:20:26","date_gmt":"2017-08-21T10:50:26","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=3528"},"modified":"2020-12-15T18:37:25","modified_gmt":"2020-12-15T13:07:25","slug":"rbi-regulation-payment-gateways-pre-paid-instruments-and-e-wallets","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/rbi-regulation-payment-gateways-pre-paid-instruments-and-e-wallets\/","title":{"rendered":"All you need to know about Pre-Paid Instruments"},"content":{"rendered":"<p class=\"has-drop-cap\">With the extensive use of technology and smartphones, it has begun to affect not only the way we use products or services but how we pay for them. One of our recent developments is<a href=\"https:\/\/enterslice.com\/prepaid-wallet-license\">&nbsp;<\/a><strong><a href=\"https:\/\/enterslice.com\/prepaid-wallet-license\">Pre-paid wallet<\/a>&nbsp;<\/strong>which is often mistaken for mobile banking.<\/p>\n\n\n\n<p>Providing mobile merely as means to do the transaction through different modes of payments like net-banking and credit cards, mobile wallets use mobile phones as prepaid accounts where one can store money which can be used for transactions.<\/p>\n\n\n\n<p>They are according to the common legal parlance, known as pre-paid instruments, where one can pre-pay the money and store it in the e-wallet\/instrument which can be further used to make payments later.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Pre-Paid Instruments<\/h2>\n\n\n\n<p>These are those instruments which facilitate the purchase of goods and services against the value stored. The value stored represents the value paid by the holder by means of cash, by debit card, or by credit card.<\/p>\n\n\n\n<p>Pre-paid instruments are mainly online wallets where one can store money and later on can pay money using the same wallet. In other words, it can also be called as electronic wallets.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Types of Pre-paid Instruments<\/h2>\n\n\n\n<p>Here are the types of pre-paid instruments:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img decoding=\"async\" loading=\"lazy\" width=\"642\" height=\"251\" src=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/12\/image-39.png\" alt=\"Types of Pre-paid Instruments\" class=\"wp-image-42326\" srcset=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/12\/image-39.png 642w, https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/12\/image-39-300x117.png 300w\" sizes=\"(max-width: 642px) 100vw, 642px\"\/><\/figure><\/div>\n\n\n\n<ul><li><strong>Closed Instruments<\/strong><\/li><\/ul>\n\n\n\n<p>These are issued by entity for facilitating the goods or services purchased from that entity only and don&rsquo;t allow cash withdrawals. These instruments can&rsquo;t be used for payments or settlement for third party services.<\/p>\n\n\n\n<ul><li><strong>Semi-Closed Instruments<\/strong><\/li><\/ul>\n\n\n\n<p>The third-party is involved here. It is issued by banks and non-banks for purchase of goods and services. Money can be paid through these instruments and it cannot be withdrawn.<\/p>\n\n\n\n<ul><li><strong>Open Instruments<\/strong><\/li><\/ul>\n\n\n\n<p>According to the current legal framework, only banks are allowed to issue open instruments. It can also be used to withdraw money. Cash can be withdrawn at ATMs or PoS terminals. For example, Digital Credit Cards issued by Banks.<\/p>\n\n\n\n<p><strong>Recent Developments:<\/strong><\/p>\n\n\n\n<p>Earlier only Banks and NBFCs were allowed to use the prepaid instrument for online payment. Recently&nbsp;<strong>Reserve bank of India<sup><a href=\"https:\/\/www.rbi.org.in\/\">[1]<\/a><\/sup><\/strong>&nbsp;has passed a master circular giving permission to 197 companies to operate online pre-paid instruments. With this now, we have e-wallets like PayTM Wallet, OLA money, Mobikwik etc.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Laws Governing Pre-paid Instruments<\/h2>\n\n\n\n<p>In India, it is governed by the Payments and Settlements Act, 2007. According to Section 18 of this Act, it empowers the Reserve Bank of India to make required regulations time to time for the purpose of regulating payment system in India. Reserve Bank of India has already laid down guidelines for the purpose of issuance and operation of Pre-paid Payment Instruments.<\/p>\n\n\n\n<p>RBI circular defines different kinds of payment instruments that can be created.<strong>&nbsp;<a href=\"https:\/\/enterslice.com\/learning\/semi-closed-wallets\/\">Semi-Closed System<\/a>&nbsp;<\/strong>Payment Instrumentis the common form of payment instrument as only banks are permitted to offer Open System Payment Instruments.&nbsp; It can be used for the purchase of goods &amp; services from the identified merchants and service providers, but it doesn&rsquo;t allow withdrawal of the currency from the instrument. Non-Banking Finance Companies (<a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;NBFC&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;Non-Banking Financial Companies (NBFC) operate similarly to banks but do not possess the legal status of a bank. Registered under the Companies Act 2013 and governed by the RBI Act&amp;#039;s section(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/nbfc\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>NBFC<\/a>) and companies incorporated in India are eligible to apply for a license.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Legal Compliance for Pre-paid Instruments<\/h2>\n\n\n\n<p>RBI issues several guidelines from time to time. It is important to keep track of all the regulations as RBI keeps updating the set of guidelines under the Payments and Settlements Act, 2007 and rules made thereunder. Key legal compliance is enlisted below:<\/p>\n\n\n\n<ul><li>As per the Section 4 Act, no person can commence payment system unless authorized by the Reserve Bank of India. Any person desirous needs to apply for authorization.<\/li><li>The application for authorization is required to be made as per Regulation 3(2) of the Payment and Settlement Systems Regulations, 2008. It has to be duly filled up and submitted with the required documents to the Reserve Bank of India.<\/li><li>Entities desirous of setting up such payment system are required to apply for authorization under the Act.<\/li><li>Unauthorized operation of a payment system would be an offense and liable for penal action under the Act.<\/li><li>Minimum capital of Rs 5 crores is required in order to be listed as a &lsquo;Pre-paid instrument&rsquo;<\/li><li>There are norms which are required to be followed by issuers of instruments such as KYC (Know Your Customer) Norms, <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Anti-Money Laundering&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;In an increasingly complex global financial landscape, combating financial crimes like money laundering has become paramount. Anti-Money Laundering (AML) is a comprehensive framework of(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/anti-money-laundering\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>Anti-money laundering<\/a> Norms (under the Prevention of Money Laundering Act) and Anti-Financial Terrorism norms.<\/li><li>There is a cap of Rs. 10,000 which can be there in e-wallet at any time.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Dispute Settlement Mechanism<\/h2>\n\n\n\n<p>For the purpose of settlement of disputes between system participants in a payment system or between system participant and system provider or between system providers, Act lays down mechanism. It requires from system provider to make provision in its rules or regulations regarding the creation of a panel to decide disputes between system participants. In case any system participant is not satisfied with the decision, then such disputes are referred to the Reserve Bank&nbsp;for adjudication and their decision shall be final and binding on the parties. In the case when the Reserve Bank is a system participant or system provider or we can say is itself a party to the dispute, then there is a provision to refer such cases to the Central Government for adjudication.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p>A framework is provided for working on pre-paid instruments and online payment systems under the Payments and Settlements Act, 2007. It also provides provisions for appropriate licenses, dispute settlement mechanism, as well as penalties in case of non-compliances.<\/p>\n\n\n\n<p>However there are appropriate provisions, but there is no proactive implementation of the said provisions by the stakeholders. Various Companies such as PayTM, Olaare regularly flouting the mechanisms by not following the KYC Guidelines, Money Laundering Norms etc. In a recent case, Uber was trying to bypass a two-step authentication process which is required for issues of pre-paid instruments.<\/p>\n\n\n\n<p>In this era of technology and e-payments, it is required to prepare solid online systems to make sure that any company or&nbsp;<a href=\"https:\/\/enterslice.com\/nbfc-registration\"><strong>NBFC<\/strong><\/a>&nbsp;is not able to bypass the stringent norms stated under Payments and Settlements Act, 2007 and rules therein.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/enterslice.com\/learning\/can-a-struck-off-company-get-restored\/\">Can a struck off company get restored?\n<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>With the extensive use of technology and smartphones, it has begun to affect not only the way we use products or services but how we pay for them. One of our recent developments is&nbsp;Pre-paid wallet&nbsp;which is often mistaken for mobile banking. Providing mobile merely as means to do the transaction through different modes of payments [&hellip;]<\/p>\n","protected":false},"author":35,"featured_media":42332,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1332,1331],"tags":[3585],"acf":{"service_id":"72"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.6.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>All you need to know about Pre-Paid Instruments - Enterslice<\/title>\n<meta name=\"description\" content=\"Pre-paid instruments are mainly online wallets where one can store money and later on can pay money using the same wallet.\" \/>\n<meta name=\"robots\" content=\"index, follow\" \/>\n<meta name=\"googlebot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta name=\"bingbot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/enterslice.com\/learning\/rbi-regulation-payment-gateways-pre-paid-instruments-and-e-wallets\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"All you need to know about Pre-Paid Instruments - Enterslice\" \/>\n<meta property=\"og:description\" content=\"Pre-paid instruments are mainly online wallets where one can store money and later on can pay money using the same wallet.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/enterslice.com\/learning\/rbi-regulation-payment-gateways-pre-paid-instruments-and-e-wallets\/\" \/>\n<meta property=\"og:site_name\" content=\"Enterslice\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/enterslice\" \/>\n<meta property=\"article:published_time\" content=\"2017-08-21T10:50:26+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2020-12-15T13:07:25+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2017\/08\/All-you-need-to-know-about-Pre-Paid-Instruments.png\" \/>\n\t<meta property=\"og:image:width\" content=\"670\" \/>\n\t<meta property=\"og:image:height\" content=\"352\" \/>\n<meta name=\"twitter:card\" content=\"summary\" \/>\n<meta name=\"twitter:creator\" content=\"@enterslice\" \/>\n<meta name=\"twitter:site\" content=\"@enterslice\" \/>\n<!-- \/ Yoast SEO plugin. -->","authorName":"Ashish M. Shaji","authorImageUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/10\/04.jpg","authorDescription":"Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.","postViews":596,"readingTime":4,"nextPost":{"id":3534,"slug":"process-income-tax-refund-india"},"prevPost":{"id":3524,"slug":"proposal-for-rbi-compounding-application"},"featuredMediaUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2017\/08\/All-you-need-to-know-about-Pre-Paid-Instruments.png","postTerms":"Prepaid Wallet License","_links":{"self":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/3528"}],"collection":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/users\/35"}],"replies":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/comments?post=3528"}],"version-history":[{"count":0,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/3528\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/media\/42332"}],"wp:attachment":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/media?parent=3528"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/categories?post=3528"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/tags?post=3528"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}