PPI License

A Prepaid Payment Instrument (PPI) can be used to buy goods and services including financial services as well as remittance of money from one place to another within India. Some of the well-known Prepaid Payment Instruments (PPIs) include Paytm (now Payments Bank), Phone Pay, Ola Money, Amazon Pay, DMRC, mPurse Wallet, Mobikwik, Unimoni (Semi-Closed Prepaid Payment Instruments (PPIs)), Gift card (Closed Prepaid Payment Instruments (PPIs), Travel/Debit/credit cards (Open Prepaid Payment Instruments (PPIs). 

Prepaid Payment Instruments are methods that facilitate the purchase of goods and services against the value stored on such instruments. The value stored on such instruments represents the value paid for by the holder, by cash, by debit to a bank account, or by credit card. The prepaid instruments can be issued as smart cards, magnetic stripe cards, internet accounts, online wallets, mobile accounts, mobile wallets, paper vouchers, and any such instruments used to access the prepaid amount.  Instruments are mostly seen in the form of Prepaid Cards, Gift Card, and Mobile App/Wallet. 

Various Categories of Prepaid Payment Instruments

The prepaid payment instruments are broadly classified under the following categories:-

Closed System Payment: 

A closed wallet is a wallet that is issued by a company to a consumer for buying goods and services exclusively from that company. Examples: Flipkart, Amazon, Makemytrip, etc. Such instruments do not allow cash withdrawal or redemption.

Restrictions of Close System Payment Wallet:

• The closed wallet does not permit cash withdrawal or redemption.
• In case money is stored in a closed wallet, it can only be used to purchase from the particular Site.

Open system payment

This is a type of wallet that can be used to purchase goods and services and also permit cash withdrawal at ATMs. Only a Banking entity is allowed to issue such an instrument in the market.

You can use the Open system payment wallet:

• For cash withdrawal at an ATM
• Payment on purchase of goods and services by swiping
• Use the POs machine for making payments.

Semi-Closed system payment:

It is a wallet that can be used to buy goods and services as it is a payment instrument that is redeemable by a clearly identified merchant that contracts specifically with the issuer to accept the payment instrument. Examples- Phonepay, Mobikwik, mPurse, etc.

You can use a Semi-Closed payment wallet:

•  To Pay the affiliated merchant for purchasing goods
• Purchase from wallet issuer
• Transfer money

Commonly Issued Prepaid Payment Instruments (PPIs) in India

Some of the commonly issued Prepaid Payment Instruments (PPIs) in India are:

• Mobile Prepaid Wallet Instruments: The prepaid talk time issued by mobile service providers like Reliance Jio, Airtel, etc. This value of talk time can also be used for the purchase of 'value added service' from the mobile service provider or third-party service providers.
• Gift Cards issued by NBFCs, Banks, and any other Companies: These are non-reloadable cards issued for a maximum period of 3 years from the date of issuing the card, up to the specified limit.  Additionally, they cannot be redeemed against cash. 
• Social benefit cards for Government Employees: Banks are allowed to issue Prepaid Payment Instruments (PPIs) to Government Organizations for onward issuance to the beneficiaries of Government-sponsored schemes (e.g. Food vouchers). Here verification of the beneficiary is not the accountability of banks but that of the government organization issuing such cards.  They can be loaded/reloaded up to the specified limit only by debit to a bank account, managed by the Government Organizations with the same bank.
• Remittance Cards for Cross-Border Transactions: These are Prepaid Payment Instruments (PPIs) issued by banks for credit of cross-border inward remittances.
• Corporate/Business Cards: Banks are permitted to issue prepaid instruments up to the specified limit to corporate/businesses listed on stock exchanges, for onward issuance to their employees. These are linked to the bank accounts of the employees but primary responsibility for identification of the beneficiary lies with corporates and not with banks. These are loaded/reloaded only by debit to the bank account and provide for the facility of fund transfer (for the amount remaining on the card) to the bank account of the employee.
• Travel Cards for NRI’s & Foreign Visitors: These are Rupee denominated non-transferable Prepaid Payment Instruments (PPIs) issued by overseas branches of banks in India (directly or in collaboration with the exchange houses/money transmitters) for visiting foreign nationals and Non-Resident Indians (NRIs). The cards can be issued up to an amount of Rs.2 lakhs only by loading from a KYC-compliant bank account. Moreover, cash withdrawals from such Prepaid Payment Instruments (PPIs) are restricted to Rs 50,000/- per month. Such Prepaid Payment Instruments (PPIs) are activated by the bank only after the traveler arrives in India and can be used only for transactions/purchases in India. Foreign travel card transactions can only be settled in Indian Rupee.
• PPI for Mass Transit Systems (MTS): These are semi-closed Prepaid Payment Instruments (PPIs) issued by the mass transit system operator (e.g. Metro trains, transport corporations, etc.) for automated fare collection. Apart from the mass transit system, such Prepaid Payment Instruments (PPIs) can also be used at other merchant’s facilities whose activities are allied to or are carried on within the premises of the transit system.  They are reloadable in nature and at no point in time, the value/balance in PPI can exceed the limit of Rs. 2,000/-.

Who Can Issue Prepaid Payment Instruments in India?

• Only those companies incorporated in India and have a minimum paid-up capital of Rs. 5 crore and minimum positive net worth of Rs. 5 crore at all times are permitted to issue Prepaid Payment Instruments (PPIs) in India. Subject to reach Net Worth of INR 15 Crore by the end of 3rd Financial Year of Authorization.
• Banks that comply with the eligibility criteria are permitted to issue all categories of Prepaid Payment Instruments (PPIs). However, only those banks which have been permitted to provide Mobile Banking Transactions by the Reserve Bank of India are permitted to launch mobile-based pre-paid payment instruments (mobile wallets & mobile accounts). Non-Banking Financial Companies (NBFCs) and other persons are permitted to issue only closed and semi-closed system payment instruments, including mobile phone-based pre-paid payment instruments. Non-bank persons issuing payment instruments are required to maintain their outstanding balance in an escrow account with any one of the scheduled commercial banks.
• Persons issuing pre-paid payment instruments have to maintain a log of all the transactions undertaken using these instruments. This data is made available for scrutiny by the Reserve Bank or any other agency/agencies as directed by RBI. They also need to file a Suspicious Transaction Report (STR) to Financial Intelligence Unit – India (FIU-IND).

• The Banks and the NBFCs are permitted to issue prepaid payment instruments only once they have obtained approval from the Reserve Bank of India along with requisite net worth achievement.
• The entities other than banks or NBFCs must have a minimum affirmative net worth of Rs 5 crore and upon approval from RBI to act as PPI semi-closed, the entity is required to reach a positive net worth of 15 crore by the end of 3rd financial year
• 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.
• 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 for 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 credentials shall be a part of the net worth:

• The Paid-up Equity Share Capital
• The Free Reserves
• The Preference Share Compulsorily Convertible into Equity in 5 Years
• The Share Premium Account

The documents required for getting the license for issuing PPI 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 and Banker details of the entity
• The most recently scrutinized balance sheet of the company
• And any other important documents that may be needed from time to time.

• 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 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 for 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 instrument 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 such 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 for 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 an outcome of which thirty percent of 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.

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. Also, validity depends on RBI's discretionary decision-making, as RBI can cancel it at any time based on its risk analysis.
• It shall be the duty of the PPI issuer to notify the holders about the expiration of the Prepaid Payment Instruments (PPIs) by 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 get a new PPI, he or she shall be given a grace period of sixty days.
• With the improvement and focused area of the Government on Digitalization and a Cashless Economy followed by Corona Covid-19 Lockdown the digital payment wallet system has drastically increased and played a huge role in the country's Financial Ecosystem. In the meantime in Corona, Government allowed the cash withdrawal facility from Payments Bank across the Retail Shop of India, is been very instrumental to send/receiving and withdraw money for the public at large without reaching an ATM.
• Innovation is only a single-face orientation to penetrate the financial ecosystem, the market leader followed by other players/stakeholders has demonstrated the market well enough, now the focus is not being Tier I city it’s across India's every nook and corner. 
• Market player Prepaid Payment Instrument has holistically broadened its business horizon and reach on various other technology platforms like issuance of POS machines, Partnership with Bank for Credit/Debit Card of their own brand, Payment Aggregator, Payment Gateway and Payments Bank.