Overview of Prepaid Wallet License

The Reserve Bank of India (RBI) has taken many steps to fast-track the money transfer process in an endeavour to promote Ease of Doing Business and Digital India. The RBI regularly issues and updates guidelines and rules related to different NBFC Licenses, including Prepaid Payment Instruments or Prepaid Wallet License. A PPI or Prepaid Wallet permits users to purchase items through a digital mode. It is necessary to obtain the Certificate of Authorisation from RBI to set up and operate payments system for PPIs. Non-Bank entities seeking prepaid wallet license must adhere to the RBI's Master Direction before applying for this license.

What are Payment Wallet/Prepaid Payment Instruments (PPIs)?

PPIs are payment instruments that facilitate the purchase of goods and services against the stored value on such instruments. The value fixed on such instruments represents the value paid by the holder by cash, debit against a bank account or credit card. Prepaid Payment Instruments can also be defined as the pre-loaded cards/ digital wallets used for making digital transactions.

Prepaid instruments can be issued as Magnetic Stripe Cards, Internet Accounts, Smart Cards, Mobile wallets, and other instruments that can help access the pre-paid amount. (Ex. Sodexo cards where companies deposit funds for employees for meal coupons). However, PPIs can no longer be issued as paper vouchers.

Regulation of Prepaid Payment Instruments  

Prepaid Payment Instruments or PPIs are licensed and regulated by the Reserve Bank of India under Section 18, read with Section 10(2) of the PSS Act, 2007 (Payment and Settlement Systems Act, 2007). The Master Direction issued by the RBI is also applicable to banks and non-banks that wish to set up a PPI system in India

Type of Prepaid Payment Instruments for Obtaining a Payment Wallet License

The latest Master Direction of the Reserve Bank of India (RBI) released in 2021 amended the Master Direction on Issuance and Operation of Prepaid Payment Instruments (2017). The Master Direction has introduced five different kinds of PPIs in India:

1. Cash Loadable Small PPIs
2. Cash Non-Loadable Small PPIs

• Full KYC PPIs

1. Gift PPIs
2. PPI-MTS

Cash Loadable Small PPIs

Under the new Master Circular of RBI, Small Pre-paid Payment Instruments (both with facility of cash loading and no-cash loading) are permitted to be issued by banks and non-banks after obtaining minimum details of the PPI holder; however, such PPIs shall be reloadable and can only be issued in electronic form. The issued instruments shall only be used for the purchase of goods and services. The issued small PPIs can be used with a group of identified merchants establishments/ locations with specific contact with payment aggregator (payment gateway ex. Razorback, Phone Pay etc.).

Salient features

• The amount loaded can't exceed the Rs.10, 000 in a given month, and in a financial year, it cannot exceed Rs.1, 20,000.
• The amount outstanding at any point of time shall not exceed Rs. 10,000/-;
• The total amount debited during any given month shall not exceed 10,000/-;
• Loading and Reloading can be by cash or electronic means; and
• Small PPIs have to convert themselves into full-KYC PPIs within a period of 24 months from the date of issue of PPI.

Cash Non-Loadable Small PPIs

Salient features

• Small PPIs are prohibited from transferring funds or cash withdrawals;
• The amount loaded can't exceed the Rs.10, 000 in a given month, and in a financial year, it cannot exceed Rs.1, 20,000;
• The amount outstanding at any point in time shall not exceed Rs. 10,000/;
• The total amount debited during any given month shall not exceed Rs. 10,000/-;
• Loading and Reloading shall be from a full-KYC PPI /bank account/credit card /; and
• The Small PPIs (with cash loading facility) existing as on December 24, 2019 can be converted to Cash Non–Loadable Small PPI, as per the wish of PPI holder.

Full-KYC PPIs

Banks and non-banks issue KYC Pre-paid Payment Instruments after completing detailed Know Your Customer (KYC). These PPIs are allowed to perform funds transfers or cash withdrawals. The limit for full-KYC PPI accounts will be increased from Rs 1 lakh to Rs 2 lakh. Therefore, the storage size of pre-loaded payment instrument can be doubled due to recent development. Furthermore, only Full-KYC PPIs possessing the requisite license from RBI would be permitted to be used in cross-border outward transactions or for making payments under Liberalised Remittances Scheme.

Salient features of Full- KYC PPIs:

• Full- KYC PPIs are reloadable;
• The amount outstanding shall not exceed the limit of Rs.2,00000/- at any given time;
• There are no prescribed limits for total credits/ debits during a month; and
• They can also be used for cash withdrawal and funds transfer.

Specific Categories of PPIs

Banks and non-banks issuing PPIs shall not issue for any other category except as permitted under the following categories.

Gift PPIs

• A prepaid gift instrument shall not exceed the maximum value, i.e. Rs.10000/-;
• These kinds of instruments are not reloadable;
• Funds transfers and cash withdrawals are prohibited for such instrument;
• KYC details shall be maintained by the PPI issuer, Whereas separate KYC is not required for customers using instruments like Debit Cards and Credit Cards;

PPIs for Mass Transit Systems (PPI-MTS)

• MTS operators shall issue these PPIs only after authorisation from the concerned authority under the PSS Act;
• Automated Fare Collection shall be a significant feature of transit services;
• These PPIs shall be used only at those merchant outlets whose operations are within premises;
• PPI issuer may decide about customer details required for issuance of such PPIs;
• PPI-MTS issued is reloadable;
• In these kinds of PPIs maximum value outstanding shall not exceed the limit of Rs.3,000/- at any point in time;
• Funds transfers and cash withdrawals are prohibited for such instruments.

Interoperability of Prepaid Payment Instruments

Interoperability of PPIs means customers using PPI cards or e-wallets issued by any payment company can make a digital transaction using PPIs at any other payment acceptance point. It is the technical compatibility of a payment system that acts as a link between the user and any other payment system. The RBI mandates the pre-paid instruments (PPIs) operators to enable full interoperability to PPI cards by March 2022. Only Full-KYC customers will be able to take benefits of interoperability.

Some PPIs that can be used across which features Interoperability:

• Wallets through –UPI(QR codes in all modes will be interoperable by 31st March 2022);
• Cards( physical/ virtual ) will be affiliated authorised card networks;
• Gift PPIs have an option to offer Interoperability;
• PPI –MTS are exempted.

Benefits of a Prepaid Wallet License

The advantages of keeping prepaid wallet License or prepaid wallets are as follows:

• Multi-Layered Encryption of PPIs offers data protection;
• Prepaid Wallets are theft free as they are protected with passwords, unlike physical wallets, which may get stolen;
• Even online payments such as internet banking need many details while making payments, the amount can be transferred only after 24 hours or 12 hours of adding the beneficiary. No such problems are faced under wallet-based transactions;
• No service charges are to be paid for these wallets. One does not need to pay an activation fee; annual fees are charged for facilities like IMPS or Debit cards;
• These wallets also offer incentives and rewards for referrals;
• Automated payment facilities are a saviour for working professionals as they can make timely payments within due dates;
• Loading money in these wallets is a hassle-free task. Net banking and debit cards can add money to these wallets.

Conditions for Obtaining Prepaid Wallet License/ PPI License

The requirements for obtaining Prepaid Wallet License/ Payment Wallet License are the following:

• Banks and Non-Banks shall have No Objection Certificate (NOC) from the Department of Payment Settlement and Systems, RBI.
• The Minimum Capital Requirement shall be obtained in the form of:

1. Net owned Worth;
2. Paid-up Equity capital;
3. Preference shares;
4. Free Reserves;
5. Share premium account;
6. Capital reserves representing surplus;
7. Book value of Intangible Assets;
8. Deferred Revenue Expenditure

• All non-bank entities at the time of seeking authorisation from RBI under the PSS Act, 2007 must be registered under the Companies Act, 2013 and shall have a minimum positive net worth of Rs. 5 crores as per the latest audited balance sheet during submission of the application. Thereafter, by the end of the third financial year from the receiving date of final authorisation, the entity shall achieve a minimum positive net worth of Rs. 15 crores which shall be maintained at all times.
• Proper details of the IT Infrastructure setup for the operability of Prepaid Payment Instruments shall be furnished by the applicant;
• Detailed Business Plan and Project Reports shall be submitted before the RBI. The submitted Business plan should be viable and realistic, and it should cover the aspects relating to the bank's access point in rural and semi-urban areas, customer grievance redressed mechanism and joint venture partnership with Scheduled Commercial Bank.The applicants should furnish the business plan in the prescribed form (Form III).
• All newly registered non-bank entities that may not have audited financial statements, must obtain a Net worth Certificate from Chartered Accountant.
• Fit and Proper criteria has to be met.
• The object clause of the Memorandum of Association shall allow the company to undertake the issuer's activities of prepaid payment instruments.
• For obtaining the Prepaid Wallet License by NBFCs, Scheduled Commercial Banks are not mandated to fulfil the minimum capital requirement. However, they must obtain approval from RBI and have authorization to issue prepaid payment instruments;
• An authorised non-bank PPI issuers need to submit a net-worth certificate every year in the enclosed format to evidence compliance with the net-worth requirement as per the audited balance sheet within 6 months of completion of that financial year;
• An entity shall achieve a minimum net worth of Rs. 15 crores for the financial position as of March 31, 2023 if entity got final authorisation on 1^st March 2021 In case the entity is issued final authorisation on May 01, 2021, then it shall achieve a minimum net worth of Rs. 15 crores for the financial position as on Mar 31, 2024.

Documents Required for Obtaining Prepaid Wallet License

The following documents are required for getting a prepaid wallet license/ Payment Bank License:

• Name of the Applicant
• Address Proof of Registered Office
• Certificate of Incorporation
• No Objection Certificate from RBI
• A Complete Report of the principal business of the entity
• Managerial Details
• Appointment of Statutory Auditor of the Company
• Detailed Business Plan and Project Reports
• The Audited Balance sheet of the financial year
• Name and Address of Bankers of the Company
• Expected profits for Indian Financial System
• Proposed Capital Amount
• Sources of Funds
• Any other Information required by RBI

(Above list is not an exhaustive list, RBI may ask for more documents in process to  grant the Prepaid Wallet License)

Procedure to Obtain Prepaid Wallet License/PPIs

The following are the procedures to get the authorization for getting a Prepaid Wallet License/ Payment Wallet License:

Step-1: Making an Application in Form A for approval as prescribed under Regulation 3(2) of the Payment and Settlement System Regulations, 2008, with the sanctioned government fee and all relevant documents to the Reserve Bank of India to obtain the PPI License.

Step-2: The RBI shall initiate the Screening process to ensure the eligibility of applicants.

Step-3: RBI shall also apply check, inter-alia, on certain essential aspects like customer service efficiency, technical, safety, and security aspects for ascertaining the requirements for the application.

Step-4: After the RBI is satisfied with eligibility criteria and fit & proper status, RBI issues an 'in-principle approval’, valid for six months from the approval date.

Step-5: The Company must submit an Audit Report to RBI within six months. The Company must submit the System Audit Report (SAR); otherwise, automatic in-principal approval will lapse. The Company may get an extension (single) of six months by making an advance appeal in writing with all the valid reasons.

Step-6: After considering all the particulars furnished by entities, the Company will be granted final approval. The company must commence business within six months of receiving the Certificate of Authorization.

Validity Period of Prepaid Wallet License/PPIs

• All PPIs issued shall have a minimum validity for a period of 1 year from the last loading/reloading date in the PPIs.PPI issuers are free to issue PPIs with longer validity.
• Certificate of Payment Wallet License from RBI shall be valid for 5 years, unless otherwise specified. However, it shall be subject to review, including the cancellation of Certificate of Authorisation by RBI.
• If PPIs are issued in the form of a card (with a validity period mentioned on the card), then the customer shall have the option to seek a replacement of the card.
• The outstanding balances of payment instruments shall not be terminated immediately at the instrument's expiration. The value may be depleted at 10% of the outstanding value per month. The holders may also be adequately cautioned in advance regarding the expiry of the validity of the payment instruments.
• The application for Licences Renewal must be made before 3 months from the date of expiration.