How to Start a Prepaid Wallet License Business in India?

In recent times, online payments and cashless transactions have gained a lot of popularity owing to the ease with which they get done. Nowadays, people hardly carry any cash and prefer making online payments. Prepaid Payment Instruments, also known as PPIs, allow the customer to do the financial transactions through the value stored in such an instrument. These are also known as e-wallets.

Prepaid Payment Methods are convenient methods that fulfill the target of making a cashless transaction economy, which ensures there remain transparency and accountability in every payment and receipt.

Prior approval of RBI is required to commence and operate the business of prepaid instruments. The detailed process of commencing a prepaid wallet license in India has discussed henceforth.

Types of Prepaid Wallet License

RBI has classified prepaid wallet into the following types:

• Closed Wallet: These wallets are issued to the customer by an entity being individual, sole proprietorship, partnership, etc., for making payment to them for the purchases of goods and services. These instruments cannot be used to make payments to the third party. For Example Ola money wallet
• Semi-Closed Wallet: These wallets are utilized for the purchase of goods and services from the group of vendors accepting such modes of payments. For example, booking a movie at PVR who accepts Paytm. Entities are permitted to carry on the business of a semi-closed wallet by obtaining the license from RBI.
• Open Wallet: This wallet allows the holder of such instruments to purchase goods and services, fund transfer, and cash withdrawal from ATMs. These wallets get issued by banks and include Visa, Master cards, etc.
• Cross border transactions: FEMA authorizes individuals to issue prepaid wallets denominated in Foreign Exchange that doesn’t attract the provisions of these guidelines as per RBI. These instruments are limited to INR 5000 for each cross border transactions.

Prerequisite for Prepaid Instrument License

Following are the conditions laid down by RBI which one needs to fulfill for obtaining the license of Prepaid Payment Instrument:

• Every entity that seeks approval to do the business of Prepaid Wallet Instrument shall maintain the minimum positive net-worth of INR 25 Crore as per its latest audited balance sheet.
• Earlier registered PPIs license got canceled if they fail to increase their limit of minimum net worth as per these guidelines by the 30th of September, 2020.
• Net-Worth shall be the sum of the following items:

✔ Paid-up equity capital

✔ Preference shares

✔ Free reserve

✔ Share premium

✔ Capital reserve.

• This requirement of minimum net worth needs not to be fulfilled by schedules banks or NBFCs registered with RBI. The supervisory department of RBI grants the authorization to banks/NBFCs who seeks approval for the issue prepaid instrument.
• Newly registered companies need to submit a declaration from a chartered accountant relating to the company’s current net worth. These entities have to provide provisional balance sheets as well as supporting documents relating to capital or fund acquired to start the business.
• An entity seeking approval from RBI shall get registered under the Companies Act, and the object clause of such entity shall authorize the Company to operate as PPI issuer.
• In the cases where there is a change in the management of the company as a result of takeover, acquisition, merger, or due to other similar activities needs to take written approval from RBI.

Procedure for Non-Banking Entities

Following are the detailed steps to be followed by every non-banking entity for seeking approval for the grant of license:

• Apply in form A along with necessary documents (as mentioned below) as per the Payment & Settlement System Regulations 2008.
• RBI on receipt of such an application, scrutinizes the eligibility of an applicant.
• RBI verifies fit and proper status of an applicant through the feedbacks of regulators, government authorities, etc.
• RBI can also access the application based on other criteria such as customer services, technical efficiency, etc.
• If the application is not justifiable or RBI is not satisfied can reject the same.
• If RBI accepts the application because every condition is fulfilled and satisfied, RBI shall grant in-principal approval that is valid for 6 months.
• Satisfactory Audit Report shall be submitted by an applicant within 6 months of receipt of in-principal approval, failing which such approval will lapse.
• On receipt of final approval, the entity shall commence its business within 6 months of approval; otherwise, authorization shall lapse.
• Certificate of Authorization remains valid for 5 years, which can be renewed provided the applicant needs to apply 3 months before the expiry of the license.

Documentation

Following documents need to be attached with Form A for applying for prepaid wallet license:

• Details of the applicant such as PAN, Aadhar, Residential Address proof, Contact number, Email Id.
• Constitution of an applicant such as private limited, public limited, OPC, etc.
• Certificate of Incorporation of a company.
• Main business activity of the company as per its Object clause in MOA.
• Information relating to management, directors, employees, and other key people responsible for the operational activity of the company.
• Audited balance sheet and provisional balance sheet (in case of a new company).
• Details of the bankers of the company.

Utilization of Fund

Funds collected for the issuance of e-wallet plays a crucial role. If the payment gets settled with certainty and on time, the confidence of the public and merchants, is enhanced on e-wallet methods of payment. Any entity that issues the e-wallet shall keep in reserve an outstanding balance in an escrow account opened with a separate schedule bank. Such an account shall be maintained with only one bank at a time, and the transfer of account from one bank to another shall be time-bound with minimal effect on the payment cycle.

Advantages of Prepaid Wallet

Following are the merits of keeping a prepaid wallet:

• The prepaid wallet can never be lost, damaged, or stolen as compared to a physical wallet.
• The problem of cent and change during cash transactions get abolished in payments made through prepaid wallets.
• Online payments such as NEFT, RTGS, or other bank transfer take so much of time as it needs several details to add beneficiary, and also, the fund can be transferred only after prescribed time after adding such beneficiary. However, e-wallet is quick and time-bound. For example, Phone Pay needs the only account number and IFSC code to add as a beneficiary for payment transfer. And in the case of the registered PhonePay user, the fund can be transferred by entering the recipient mobile number.

Conclusion