How to Start a Prepaid Wallet License

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Overview of Prepaid Wallet License and 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:

  • Closed system payment instruments;
  • Semi-Closed system payment instruments;
  • Semi-Open system payment instruments; and
  • Open system payment instruments.
  • Mobile Prepaid Instruments

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.

Minimum Capital Requirements for Prepaid Wallet License

Minimum Capital Requirment for Prepaid Wallet

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.

What are the types of Prepaid Payment Instruments?

The types of PPIs are discussed as follows:

Types of PPI
  • 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.

  • Mobile Prepaid Instruments

    The value of prepaid talk time issued by mobile service providers can also be used for purchase of 'value addedservice' from the mobile service provider or 3rd party service providers.

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

Conditions associated with Capital for Issuing PPI

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

Documents required for Prepaid Wallet License

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

  • Name of the Applicant.
  • Address Proof of Registered Office.
  • Certificate of Incorporation
  • A Complete Report of the principal business of the entity.
  • Managerial Details.
  • Statutory Auditor of the Company.
  • The audited Balance sheet of the financial year.
  • Name and Address of Bankers of the Company.
  • Expected profits to Indian Financial System.
  • Proposed Capital Amount.
  • Sources of Funds.
  • Any other Information required by RBI.

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.

Capital Requirement

All non-bank entities seeking authorisation from RBI under the PSS Act shall have a minimum positive net-worth of Rs. 5 crore.

Thereafter, by the end of the third financial year from the date of receiving final authorisation, the entity shall achieve a minimum positive net-worth of Rs. 15 crore which shall be maintained at all times.

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

Step1: Making an Application in Form A for approval as per under Regulation 3(2) of the Payment and Settlement System Regulations, 2008, with the prescribed government fee and all the documents and details to the Reserve Bank of India to obtain the PPI License.

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

Step-3: RBI shall also apply checks, inter-alia, on certain essential aspects like customer service and efficiency, technical and other related requirements, safety, and security aspects.

Step-4: After the RBI is satisfied regarding the Applicant’s eligibility criteria after checking its fit & proper status, it issues an ‘in-principle approval. The validity of the issued in-principal approval shall be six months from the date of granting such approval.

Step-5: The Company needs to submit a satisfactory Audit Report to RBI, within six months. The company has to submit the System Audit Report (SAR), otherwise, the in-principal approval shall lapse automatically. The Company can receive a one-time extension of six months by making an appeal in writing in advance with all the valid reasons. 

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

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

  • All PPIs issued in the country shall have a minimum validity period of 1 year from the date of last loading / reloading in the PPI. PPI issuers are free to issue PPIs with a longer validity. 
  • In case, the PPI is issued in the form of card (with validity period mentioned on the card), then the customer shall have the option to seek replacement of the card.
  • The outstanding balances in any payment instrument shall not be terminated immediately at the expiration, of the instrument. The value may be depleted at the rate of 10% of the outstanding value per month. The holders may also be adequately cautioned in advance as regards the expiry of the validity of the payment instrument.

Certificate of RBI Authorisation 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.

Exemptions from Prepaid Wallet License

Exemptions from Prepaid Wallet Licenses

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.

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.

FAQs of Prepaid Wallet License

The different forms in which PPIs can be issued are Wallets, Cards, or any such form that may be used to access the PPI and for using the amount therein.

No, PPIs cannot be issued in the form of paper.

Yes, it is possible to issue PPI either on a solo basis or on a 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.

Yes, both banks and non bank PPI issuers, such as the Indian agent of an authorized overseas principal are eligible to issue PPIs for beneficiaries of “inward remittance” under the “money transfer service scheme of the RBI.

The transaction limit for the cross border inward transactions is Rs 50000.

The key features of “Minimum Detail PPI” are, it is possible to reload it, amount loaded cannot exceed Rs 10000 in a month and Rs 1 lakh in a year, the outstanding amount cannot exceed Rs 10000, can be used for purchasing goods and service only.

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

The term disclosure includes 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 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 term “Prepaid Payment Instruments” denotes the methods that facilitate the purchase of services and goods against the price fixed on such instruments.

The term “Closed Wallet” means an e-Wallet or a Mobile Wallet that is designed for making full or part-payment for the services directly offered by the wallet issuer.

The first and the foremost step in the process of starting an e-wallet business in India is to incorporate a company as an NBFC with the Apex Bank (RBI).

A bank who has approval from the Apex Bank can issue Open System PPIs. Further, one can obtain PPI License only after completing KYC of the PPI Holder.

The term “Payment Wallet” means a small software program that is used for the transactions concerning the online purchase.

In total, there are 5 different types of e-wallets available in India.

The term PPI License denotes a license given to the instruments that facilitate the purchase of services and goods, funds transfer, etc.

The term “M Wallet” denotes a Mobile Wallet that stores payment card details and information available on a mobile device.

PayPal is the cheapest payment gateway available in India.

The documents are name and constitution of the applicant, address proof of the registered office, certificate of incorporation, details about the company’s main business, management information, audited balance sheet, name and address of the company, etc.

Digital Wallet or E-wallet means an online electronic device that facilitates electronic transactions.

The RBI or Reserve Bank of India has the Authority to issue Payment Wallet License in India.

Payment Banks are classified into 4 categories, such as closed system wallets, Semi-closed system wallets, Open system Wallets, and Semi-Open Wallets.

Rs 50000 acts as the maximum loading limit for the Prepaid Wallets in India.

Yes, co-branding partnership is possible, only if the same is done in compliance with the provisions of the Companies Act 2013.

There are two types of Semi-closed PPI available in India, which are Maximum Rs 10000 if the “minimum detail of the PPI holder” is available and maximum of Rs 100000 if the “KYC of the PPI holder” is available.

One can achieve a re-load limit up to Rs 10000 and can purchase goods and service up to Rs 10000 per month.

Yes, it is mandatory to obtain RBI Clearance to acquire Payment Wallet License in India.

The money collected is used by the entities to make payments to the merchants who are part of the “acceptance arrangement”, for “facilitating funds transfer” and for “remittance services” on behalf of the PPI holders.

The list of all the approved PPI Issuers is available on the official RBI portal.

The different types of PPIs are Closed System PPI, Semi-closed system PPI, and Open System PPI.

The process in which a PPI Issuer is responsible for verifying and cross checking that the bank account relates to the PPI holder is known as Duly Verified by the Issuer.

The key features of a semi closed full KYC PPI are Reloadable in Nature, Outstanding Amount shall not exceed Rs 1 lakh, No upper limit provided for the Total Credits and Debits in a month, Purchases of Goods and Service, and Funds Transfer.

The key features of a Gift PPI are Maximum Value is Rs 10000, Not of Reloadable Nature, Not Permitted to Cash-out or Refund, and can be revalidated.

A Prepaid Meal Instrument can only be issued as Semi-closed PPIs that too without Cash Withdrawal or Funds Transfer.

No interest is payable on PPI balance.

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