Overview of Prepaid Payment Wallet License

The prepaid payment wallets also commonly known as PPIs are the instruments that have monetary value contained in them against which the goods and services are made purchasable and funds are made transferable.

The monetary value that is stored in the prepaid payment wallets is the amount that the holder has paid towards it either by way of cash or debit to a bank account or credit card. Prepaid payment wallets have become very popular in the last few years as they are very easy to use alternate ways for transactions. The transactions carried out by them are transparent, accountable, convenient, and easy to use.  The prepaid payment wallets are also referred to as e-wallets.

For the processing and the allowance for the transactions between the different prepaid payment instruments, the Reserve Bank of India has issued certain guidelines.

The prepaid instruments may be issued in the following forms:

• Smart Cards
• Internet Accounts
• Internet Wallets
• Wallet Accounts
• Magnetic Strip Cards
• Paper Vouchers
• And any other instrument that can be used to access the pre-paid amount

Types of Prepaid Payment Instruments

Below mentioned are the different types of prepaid payment instruments.

• Closed Wallet or Closed Prepaid Payment Instrument –

These are the kind of PPIs that are issued by a company to its consumers particularly for the objective of buying goods of that company only. This type of PPI can be used for the purchase of goods and services of only that particular company that has issued it. For example - Reliance Supermarkets, etc.

• Semi-Closed wallet or Semi-Closed Prepaid Payment Instrument –

In this category of the prepaid payment instruments in which the holders of such instruments are not provided with the option of cash redemption or withdrawal.

• Semi-Open Wallet or Semi-Open Prepaid Payment Instrument -

Such instruments are made to be used by the holders in order to purchase goods and services at merchant locations that only accept cards. Cash withdrawal and redemption are not permitted in such kinds of instruments. 

• Open Wallets -  

They are the prepaid payment instruments that are used to acquire goods and services at any place and the holders also have the authorization of withdrawing cash from ATMs.

Cross Border Transactions –

According to the guidelines issued by the RBI regarding the prepaid payment, wallets are not applicable to individuals who are sanctioned to issue the Foreign Exchange denominated prepaid payment instruments, according to the provisions of the Foreign Exchange and Management Act. The transaction perimeter for cross-border transactions is fixed at INR 5,000.

Benefits of E-Payment Wallet

• It is very easy and safe to make payments.
• It is extremely time-efficient as all the bills related to telephone, electricity, mobile and etc. can be paid online.
• It grants access to make online transactions at any place at any point in time.
• These kinds of monetary transactions are transparent and accountable to the issuer of the e-wallet.

Eligibility Criterion For Issuing Prepaid Payment Instruments (PPI license)

• The Banks and the NBFCs are permitted to issue prepaid payment instruments only once they have obtained approval from the Reserve Bank of India
• The entities other than banks or NBFCs must have a minimum affirmative net worth of Rs. Fifteen crores, as per its last audited balance sheet.
• In order to seek approval, these entities would have to make an application to the Reserve Bank of India.
• A freshly incorporated company shall be required to submit a certificate concerning the current net worth with its provisional balance sheet from its Chartered Accountant.
• In case any entity except for Banks and NBFCs has been holding the license for issuing prepaid payment instruments before the Reserve Bank of India made it obligatory to have a net worth of INR fifteen crores, such entity would need to increase its net worth to this prescribed limit by the end September 2020.
• It is mandatory for the company to be registered under the Company Act, 2013 or the Companies Act, 1956 to be capable of getting the license from RBI.
• It is important that the activity of operating as a prepaid payment instrument the issuer is mentioned in the Object Clause of the Memorandum of Association of the company.

Conditions Related To Capital For Issue of Prepaid Payment Instruments

While scheming the net worth of a company, the following mentioned shall be a part of the net worth:

• The Paid-up equity share capital
• The Free Reserves
• The Preference shares
• The Share Premium Account
• The Capital Reserves representing surplus

Documents Required For Getting The Prepaid Wallet License

The documents required for getting the PPI license are as follows:

• The Name of the entity
• The Address Proof of the entity’s registered office
• The Constitution of the entity
• The Entity’s certificate of incorporation
• The Primary business of the entity
• The Information of the management
• The Details of Statutory Auditor of the entity
• The most recent scrutinized balance sheet of the company
• The Names and Addresses of the Bankers of the Company
• And any other important documents that may be needed from time to time.

The Authorization Process For Applications Made By Non-Banking Entities

• Step 1: An entity that is non-banking and is seeking the approval of RBI needs to make an application in Form A as per Regulation 3(2) of the Payment and Settlement System Regulations, 2008.
• Step 2: The RBI shall then look for the prima-facie eligibility of the entity in the prior screening process.
• Step 3: After the eligibility, it is checked whether the company is “fit and proper” and the evaluation of the management of the company is done for which feedback from regulators, government authorities, etc. is taken.
• Step 4: In the next step the applicant is verified on other grounds that involve the eminence of its customer service, overall competence, technical competence and other related requirements.
• Step 5: In case the company does not meet the eligibility criterion, its application shall be rejected. The fee paid by the company at the time of making the application shall not be refunded.
• Step 6: If all the necessary perquisites are satisfied by the company, it shall be granted the in-principle approval by the Reserve Bank of India, which shall be pertinent for a period of six months. In the time period of six months of being granted the in-principle sanction, the entity will need to submit a suitable System Audit Report. If the company is not able to submit this report, its in-principle approval shall automatically trail off.
• Step 7: After the approval, the company will be given a Certificate of Authorization, which will be valid for a tenure of five years from the day it has been granted. In case the certificate of authorization needs to be renewed, an application will have to be made to the RBI three months prior to the expiration of the certificate. If there is a malfunction in making the application on time, the RBI shall have all the rights to accept or reject the application of renewal.
• Step 8: In case an entity gets the final approval, then it must begin its business operations within six months of getting the approval. If it is not able to do so, then the approval shall automatically lapse. Though, a one-time addition of six months can be taken from the RBI by making a written request in advance stating the suitable grounds for impediment in commencing the business operations. The RBI single-handedly reserves the right of accepting or rejecting such requests for time addition.
• Step 9: The issuers of prepaid payment instruments need to keep a record of all the dealings that have been undertaken with the use of Prepaid Payment Instruments for a least ten years. As per the recommendation of the RBI, this data may be made presented to the RBI or other agencies, as needed. The issuers of prepaid payment instruments are also needed to file Suspicious Transaction Reports (STRs) to FIU-IND (Financial Intelligence Unit-India).

Additional Approvals Needed By The Non-Banking Companies

In case a non-banking company has been approved the Certificate of Authorization for issuing prepaid payment instruments, then it shall be needed to take the written sanction of the RBI in the following conditions:

• In case there has been any takeover or acquirement of control of the company, whether the same has resulted in modify of management or not;
• If there is a change in the management as an outcome of which thirty percent directors of the company are changed, not including the independent directors. However, prior written approval of RBI shall not be needed for those directors who have been re-elected on retirement by alternation.

The legitimacy of the Prepaid Wallet License

• The prepaid payment instruments license is suitable for a minimum period of one year from the day when it is issued to the prepaid payment instruction holder.
• It shall be the duty of the PPI issuer to notify the holders about the expiration of the PPIs by the way of either SMS or e-mail or post or any other such means within a rational time period.
• The allusion regarding the expiry of the PPI shall be made in the holder’s ideal language that had been indicated by the holder at the time of getting the PPI. If the PPI expires and the holder does not make an application for renewal or getting a new PPI, he or she shall be given a grace period of sixty days.