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What are Prepaid Payment Instruments?

Prepaid Payment Instruments (PPIs) are instruments that have monetary value stored in them against which goods and services can be purchased and funds can be transferred.

The monetary value stored in the PPI is the amount that the holder has paid towards it – by cash, debit to a bank account or credit card. The PPIs have become very popular in the recent years as they are convenient alternative to cash transactions.

They are also effective as the transactions carried out via them are transparent, convenient and accountable. PPIs are also referred to as e-wallets.

The Reserve Bank of India has issued guidelines for prepaid payment instruments according to which transactions between different PPIs would now be allowed.

The Prepaid Payment Instruments may be issued as:

  • Smart Cards
  • Internet Accounts
  • Internet Wallets
  • Mobile Accounts
  • Magnetic Stripe Cards
  • Paper Vouchers
  • any instrument that can be used to access the pre-paid amount

What are the various types of Prepaid Payment Instruments?

The types of PPIs are discussed as follows:

  • Closed Prepaid Payment Instrument or Closed Wallet: These are PPIs that are issued by a company to its consumers exclusively for the purpose of buying goods of that company. This kind of PPI can be used for the purchase of goods/services of only that company which has issued it. For instance: Reliance Supermarkets, etc.
  • Semi Closed Prepaid Payment Instrument/Semi Closed Wallet: This the category of PPIs in which the holder can purchase good and services from a selected group of merchants who have united for this specific purpose. The facilities of cash redemption and withdrawal are not given to the holders of these instruments. For example: Mobiwik, Paytm.
  • Semi-Open Prepaid Payment Instrument/Semi Open Wallet: These instruments can be used by the holders for purchasing goods or services at merchant locations that accept cards. In these instruments also, cash withdrawal or redemption is not permitted to the holder.
  • Open Wallets: These are the prepaid payment instruments that can be used to purchase goods and services anywhere and the holders also have the permission of withdrawing cash from ATMs.
  • Cross Border Transactions: The Prepaid Payment Instruments guidelines of Reserve Bank of India are not applicable to individuals who have been authorized to issue the Foreign Exchange denominated PPIs, under the provisions of Foreign Exchange and Management Act. The transaction limit for cross border transactions is set at INR 5,000.

What are the Benefits of e-wallet system?

  • Convenient and Safe way of making monetary transactions
  • Time-efficient as all the bills such as electricity bill, telephone bill, mobile charges, etc. can be paid online.
  • Access to making online transactions anywhere at any time of the day
  • The transactions are transparent and accountable to the issuer of e-wallet.

Eligibility Criteria for Issuing Prepaid Payment Instruments

  • The Banks (Scheduled or Licensed) and the NBFCs are permitted to issue PPIs once they have obtained approval from the Reserve Bank of India.
  • Entities other than banks or NBFCs should have a minimum positive net worth of INR 15 crores, as per its last audited balance sheet.
  • These entities would also have to make an application to the RBI seeking approval for issuing PPIs.
  • For newly incorporated company, it shall be required to submit a certificate pertaining to the current net worth along with its provisional balance sheet from its Chartered Accountant.
  • If any entity (except Banks and NBFCs)has been holding the license for issuing PPIs before the RBI made it mandatory to have net worth of INR 15 crores, such entity needs to raise its net-worth to this statutory limit by September 30, 2020.
  • A company must have been registered under the Companies Act, 2013 or the Companies Act, 1956 to be able to get the license from RBI.
  • It is necessary that the activity of operating as a PPI issuer is mentioned in the Object Clause of the Memorandum of Association of the company.

Conditions associated with Capital for Issuing Prepaid Payment Instruments

When calculating the net worth of a company, the following things shall form part of the net worth:

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

What are the Documents required for getting the Prepaid Wallet License?

The documents required for getting the license for issuing PPI are:

  • Name of the entity
  • Address Proof of entity’s registered office
  • Constitution of the entity
  • Entity’s certificate of incorporation
  • Primary business of the entity
  • Information of the management
  • Details of Statutory Auditor of the entity
  • The latest audited balance sheet of the company
  • Names and Addresses of the Bankers of the Company
  • Any other relevant documents that may be mentioned from time to time

What is the Authorization Process for applications made by Non-Banking Entities?

  • Step 1:A non-banking entity seeking license approval need to make an application in Form A as per Regulation 3(2) of the Payment and Settlement System Regulations, 2008.
  • Step 2:The RBI will, then, check the prima-facie eligibility of the entity in preliminary screening.
  • Step 3:Post-the eligibility, it is checked that whether the entity is “fit and proper” and the assessment of the management of the entity is done for which feedback from regulators, government authorities, etc. is taken.
  • Step 4:Next, the applicant is checked on other grounds that include the quality of its customer service, overall efficiency, technical competence and other related requirements.
  • Step 5: If the entity does not meet the eligibility criteria, its application shall be declined. The fee paid by the entity at the time of making application will not be refunded.
  • Step 6: If all the required conditions are fulfilled by the entity, it shall be granted the in-principle approval by the Reserve Bank of India, which shall be applicable for a period of six months. In the time frame of six months of being granted the in-principle approval, the entity needs to submit a satisfactory System Audit Report. In case the entity fails to submit this report, its in-principle approval shall automatically lapse.
  • Step 7: Upon approval, the entity will receive a Certificate of Authorization, which shall be valid for a period of five years from the day it has been granted. When the certificate of authorization needs renewal, an application will have to be made to the RBI three months prior to the expiry of the certificate. If there is failure to make this application on time, the RBI reserves the right to accept or reject the application of renewal.
  • Step 8: If an entity gets a final approval, it must begin its business operations within six months of getting the approval. If it fails to do so, the approval shall automatically lapse. However, a one-time extension of six months can be taken from the RBI by making a written request in advance stating the valid reason for delay in commencing the business operations. The RBI solely reserves the right of accepting or rejecting such requests for time extension.
  • Step 9:The issuers of PPI need to keep a log of all the transactions that have been undertaken with the use of PPI for a minimum of ten years. As per the advice of the RBI, this data may be made available to the RBI or such other agencies, as required. The issuers of PPIs are also required to file Suspicious Transaction Reports (STRs) to FIU-IND (Financial Intelligence Unit-India).

Additional Approvals Required by the Non-Banking Entities

If a non-banking entity has been granted the Certificate of Authorization for issuing PPIs, it shall be required to take the written approval of the RBI in following circumstances:

  • If there has been any takeover or acquisition of control of the entity, whether the same has resulted in change of management or not;
  • If there is to be a change in the management of the entity, the consequence of which will more than 30 percent change in the directors of the entity, excluding the independent directors. However, prior written approval of RBI shall not be required for those directors who have been re-elected on retirement by rotation.

Validity of the Prepaid Wallet License

The PPI license is valid for a minimum period of one year from the day when it is issued to the PPI holder.

It shall be the responsibility of the PPI issuer to inform the holders about the expiration of the PPIs via SMS/e-mail/post or such other means within a reasonable time period.

The intimation regarding the expiry of the PPI shall be made in the holder’s preferred language, which had been indicated by the holder at the time of receiving the PPI. If the PPI expires and the holder does not make application of renewal or getting a new PPI, he/she shall be given a grace period of 60 days.

Minimum Capital Requirements to obtain Prepaid Wallet License in India

In India, the minimum capital requirements for obtaining Prepaid Wallet License can be summarised as:

  • NBFCs or Scheduled Banks: There is no minimum capital requirement specified for NBFCs or Scheduled Banks to obtain prepaid wallet license. However, before issuing the prepaid instruments, they both need to get approval from RBI.
  • Any Other Entity: Any entity other NBFCs and Scheduled Banks must have a minimum net worth of Rs 5 crores, to obtain authorisation from RBI.
  • FEMA Authorised Entities: All the entities authorised under the FEMA (Foreign Exchange Management Act), 1999, to issue foreign exchange prepaid wallets are exempt from the minimum capital requirements. However, these payment instruments can only be used for a limited permitted current account.

Exemptions from Prepaid Wallet License

In India, the entities exempted from obtaining a prepaid wallet license are as follows:

  • Entities Issuing Closed System Prepaid Payment Instruments: All the entities engaged in issuing closed system PPIs are exempt from the ambit of RBI guidelines and shall not seek authorisation from the Apex Bank. However, they need to fulfil the following conditions for the issuance of the payment instruments:
  1. The maximum value for a closed system PPI shall be Rs 5000/-;
  2. These prepaid payment instruments shall not be used to purchase another Prepaid Payment Instruments;
  3. The amount collected under this scheme will be exempt from the provisions of deployment, provided that the outstanding value of the payment instruments does not exceed the limit of Rs 50 lakhs or 10 % of the NOF (Net Owned Funds) of the issuers, whichever is lower;
  4. Any entity dealing in the issuance of these prepaid payment instruments needs to inform the RBI (Reserve Bank of India) when such schemes begin to operate;
  5. Such entities also need to submit a half-yearly audited financial statement to the Reserve Bank representing the total value and the outstanding value of the instruments issued during the period.
  • Foreign Exchange Prepaid Payment Instruments: All the entities authorised under the FEMA (Foreign Exchange Management Act), 1999 to issue foreign exchange prepaid wallets are exempt from the minimum capital requirements. However, these payment instruments can only be used for a limited permitted current account.
  • Mobile Prepaid Instrument: The conditions to be fulfilled for exempting a mobile prepaid instrument from the RBI guidelines are as follows:
  1. Besides the talk-time value, the use of such mobile prepaid instrument shall be restricted to the purchase of only those value-added digital services/ content that can work on mobile phones;
  2. The mobile payment instruments shall not be used for the purchase of other goods or services;
  3. These prepaid instruments cannot be converted into cash.

Safeguards against Money Laundering

The Department of Banking Regulation (DBR) working under the Reserve Bank of India, has issued some guidelines in their ‘Master Direction- KYC (Know Your Customer)’ to combat the issue of money laundering. These guidelines include AML (Anti-Money Laundering), KYC (Know Your Customer), CFT (Combating Financing of Terrorism), and are applicable to all the entities and their agents involved in issuing Prepaid Payment Instruments.

Deployment of Money collected on Prepaid Wallet License

The significance of the funds collected by issuing a prepaid wallet license is always high. Moreover, its proceeds are also speedier as compared to other methods. Further, the goodwill and trust of people in a prepaid wallet mechanism automatically increases if the settlement of funds is precise and on-time.

To make sure that the settlement is made on time, the way investors need to invest the funds collected are:

  • The company needs to keep the outstanding balance as a part of ‘Net Demand and Time Liabilities’ for maintaining the reserves in the Balance Sheet. These balances are calculated by using the amounts appearing in the bank accounts on the date of reporting to RBI.

Further, any other entity or persons issuing the prepaid wallet licenses needs to keep an outstanding balance reserved in an escrow account opened with any Scheduled Bank subject to the criteria as follows:

  • Only one escrow account can be opened with one bank;
  • If an entity decides to transfer an escrow account from one bank to another, it shall complete the process within a prescribed time and without affecting the payment cycles;
  • The amount remaining as balance in the escrow account shall always be equal or more than the value of outstanding Prepaid Payment Instruments and payments due to merchants;
  • The amount remaining as balance in the escrow account can only be used for paying the contributing merchant establishments and other allowed payments.

General Guidelines for the Issuance of Prepaid Payment Instruments

In India, the Apex Bank, under the Policy Guidelines on the Issuance and Operation of Prepaid Payment Instruments, 2017, has prescribed specific directions concerning the issuance of PPIs. The guidelines issued can be summarized as:

  • All the entities dealing with Prepaid Payment Instruments (PPIs) can issue both reloadable or non-reloadable PPIs under the permissible categories;
  • For the issuance of PPIs, the issuer needs to set rules and policies accepted by the Board;
  • A Prepaid Payment Instrument must carry the name of the issuing company along with its brand name;
  • No interest shall be calculated on balance remaining in a payment instrument;
  • The entities must have prior permission to reload the PPI by cash, debit to an account by debit or credit card;
  • Before the issuance of PPI, a customer must conduct the process of due diligence;
  • The loading of cash in payment instrument must be limited at 50,000/- per month;
  • The loading and reloading cash in a PPI must only be made in Indian National Rupee Currency;
  • After, the issuance of the PPI, the customer shall be solely responsible for each act; the agents would only be accountable for the omission done on their part;
  • Every entity must have a Grievance Redressal Mechanism in place.

Prevention of Frauds and Security Standards

The PPI issuers need a secure and effective risk management system to mitigate any chances of fraud and ensure end-to-end customer protection. Further, the PPI issuers need to put not only the precise information but also the data security mechanisms and techniques for the prevention and detection of frauds.

The framework that the PPI issuers need to follow to address the safety and security concerns includes:

  • In prepaid wallets, if the PPI issuers provide the same login credentials for both PPI and other services offered, then they need to inform the same to the customer through SMS or post or email. Moreover, they need to provide the option to logout from the mobile account on prompt basis;
  • PPI Issuers must use appropriate systems to prohibit multiple invalid attempts to access/ login to the PPI. Such methods include the feature of inactivity or timeout;
  • All the PPI Issuers must introduce a system, where every succeeding payment transaction in the wallet is validated by customer consent;
  • Any card, whether physical or virtual issued by the PPI issuers must mandatorily have AFA (Additional Factor of Authentication) as needed for debit cards. However, it will not be required in case of PPIs issued under PPI-MTS;
  • The PPI Issuers must provide customer induced options for setting a cap on transaction value for different transactions and the number of transactions. However, the customers must be allowed to change the caps, with additional validation and authentication;
  • Issuers must fix a limit on the number of beneficiaries that may be put in a day per PPI;
  • Issuers need to introduce a mechanism of alert when a beneficiary is added;
  • PPI Issuers must put a system to send alerts when transactions are complete using the Prepaid Payment Instruments. The alerts must also intimate about the credit or debit available/ remaining balance in the wallet after completion of the said transaction;
  • Issuers must set up a mechanism to check on the number of operations carried out in a PPI per day/ per beneficiary;
  • Issuers must also use an appropriate device to detect, prevent, and restrict the occurrence of fraudulent transactions together with loading or reloading funds into the prepaid wallet;
  • Issuers must set up a suitable internal and external escalation system in case of suspicious actions, apart from alerting the customer in case of such transactions.

Consumer Protection and Grievance Redressal Framework

In India, all issuers of prepaid payment instruments need to disclose the following all the important terms and conditions in a simple and clear language:

  • All charges for the use of the prepaid wallet instruments;
  • The period of expiration and the terms and conditions associated with the expiry of the prepaid instrument;
  • The customer care phone number and the website URL for ensuring customer service.

The PPI issuers must set up a formal, publicly disclosed customer grievance redressal framework, along with designating a Nodal Officer to manage the customer grievances or complaints, the escalation matrix, and turnaround time for complaint resolution. The complaint registering provision, if made available on mobile/ website, must be easily accessible by the customer. The things to be included in the framework can be summarised as:

  • The PPI issuers must circulate the information of their consumer protection and grievance redressal framework in simple language (preferably in Hindi, English, and the local language);
  • Issuers of prepaid payment instrument must specify the contact details of customer care, including further information of Nodal Officials for Customer’s Grievance Redressal (email address, postal address, telephone numbers, etc.) on mobile wallet apps, website, and cards;
  • PPI agents must display the proper signage of the issuer of the prepaid instrument and the contact details of the customers;
  • PPI issuers must provide specific complaint numbers for lodging/ registering the complaints and the service to track the status of the complaint lodged by the customer;
  • Issuers of prepaid wallet must initiate action to resolve any customer grievance or complaint expeditiously, preferably within 48 hours. Further, these issuers need to address the complaint within 30 days from the date of receipt of such grievance or complaint;
  • PPI Issuers must also display the detailed list of their designated or authorized (name, address, contact details, agent ID, etc.) both on the website and mobile application;
  • PPI issuers must create the necessary awareness and educate customers about the secure and safe use of the PPIs, along with the need to keep passwords confidential, process to be followed in case of theft or loss of card or authentication data or if any abuse/ fraud is detected, etc.

Transactions Across Borders

The individuals or entities authorised under the Foreign Exchange Management Act, 1999 to issue the Foreign Exchange denominated PPIs (Prepaid Payment Instruments) do not require to abide by the provisions of PPI guidelines as per RBI notification. Further, the transaction limit on the cross-border dealings for these entities is set for a maximum of Rs 5000.

Frequently Asked Questions (FAQs)

The prepaid payment instruments can be issued as cards, wallets or any such form that may be used to access the PPI and for using the amount therein. However, the PPIs in the form of paper are not allowed to be used.

Yes, it is possible to issue on solo basis or on co-branded basis with another entity, as per its choice.

The co-branding partner for PPI issue should necessarily be a company that has been incorporated in India under the Companies Act, 1956 or the Companies Act, 2013. If the co-branding partner happens to be a Bank, the same shall be required to licensed by the RBI. If the arrangement of co-branding is between a bank and a non-bank entity, the bank will be the issuer of the PPI. If both the entities are non-banking entities, the role of PPI issuer would have to be decided amongst themselves in advance.

The Indian agents of the authorized Overseas Principal- whether Banks or non-Bank PPI issuers, is granted with the permission to issue PPIs in compliance with the KYC norms. These PPIs are to be issued to the beneficiaries of inward remittances as per the Money Transfer Service Scheme (MTSS) of the Reserve Bank of India. Therefore, the entity that wants to undertake this service will have to be authorized PPI issuer as well as an Indian Agent under MTSS.

There is a limit of INR 50,000 which is allowed to be loaded/re-loaded in PPIs issued to beneficiaries by way of individual inward MTSS remittance. If there is a transaction in excess of INR 50,000, it shall be paid by way of credit to the bank account.

The following are the features of the “minimum detail PPI”:

  • It is possible to reload them.
  • The amount loaded in it cannot exceed INR 10,000 in a month and INR 1,00,000 in a financial year.
  • At one point of time, the amount outstanding on it cannot exceed INR 10,000.
  • It can be used for the purchase of goods and services only. No permission shall be granted for transferring funds to banks or other PPIs.

The holder of the minimum detail PPI always has the option of closing the said PPI at ant time and transferring the balance in it to his/her bank account, subject to compliance with the KYC requirements.

Each successive payment transaction made via PPI needs authentication by explicit customer consent. The PPIs that have been issued in the form of cards (be it physical or virtual) will mandatorily have an AFA (Additional Factor of Authentication) as required for debit cards. However, the same shall not be required for PPIs that have been issued under PPI-MTS.

Yes, the PPI issuer needs to make the following disclosures:

  • The fee and the charges that are associated with the use of PPI
  • The period of expiry and the terms and conditions of the expiration of the instrument

The disclosures should be made in clear and simple language at the time of issuance.

The issuers of PPI are required to provide the option of generating or receiving the account statements for a period of at least six months, to the PPI holder. The account statement will consist of details such as the date of the transaction, the amount debited or credited, description of the transaction and the net balance as on a specified date.

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