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.
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.