Registration of Prepaid Payment Instrument Company

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  • Complete Process of Applying
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Prepaid Payment

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Prepaid Payment Instrument

Out of the many Prepaid Payment Instruments, or PPIs – as they are also referred to, being launched in the market corresponding to an increase in digital transactions, some of the famous ones are E-Wallet and Payment Application for Mobile Users.

PPIs are payment instruments facilitating the purchase of goods and services, including funds transfer, financial services, remittance facilities, etc., against the amount stored on such instruments. The amount stored on such instruments includes the value paid for by the holders by

  • cash,
  • debit from a bank account, or
  • by credit card payment.

PPI, in simple words, is an E-wallet. You add money to it with the help of your merchant service provider. And use this money for the services available. Such as Mobile Recharge, Online Booking for Movie, Online Bill payment, and so on. While some PPIs also provide a facility to pay a third party or merchant store offline. Many companies in India have already launched this type of e-wallet. For instance PayTM, Airtel Money, Bhim App, etc.

PPIs have emerged as a convenient & portable method of initiating cashless transactions, especially since the currency change of 2016, during which the country experienced a lot of cash crunch.

It is an effective way of bringing transparent, scalable and accountable payments.

Types of Prepaid Payment Instruments

We can categorise the e-wallet according to the facilities they provide. There are 3-types of wallets prescribed in India as per RBI Guidelines.

Minimum Capital Required to Start E-Wallet

  • For Banks: No separate capital requirement has been specified for Licensed/Scheduled Banks or NBFCs registered with RBI. They need to take approval from RBI for authorization to issue the PPI.

  • For other entities: A minimum net worth capital of Rs. 25 crores as per the last audited Balance Sheet shall be maintained by all entities seeking approval from RBI to start a Prepaid Payment Instrument Business.

    The Net Worth Capital, here, consists of the following:

    • Paid-up Equity capital,
    • Free Reserves,
    • Preference shares,
    • Share premium account, and
    • Capital reserves representing surplus.

Other Conditions

  • Only an entity established under the Companies Act of India, are authorized to apply for the license from RBI.

  • For newly incorporated companies, a certificate from their Chartered Accountant about the current net worth with a copy of the provisional balance sheet shall be submitted. Moreover, the documents regarding capital infusion & other funds obtained to commence the business are also be submitted.

  • For Banks and NBFCs, the approval is granted by the Supervisory Department of the RBI.

  • All existing PPI issuers who have a license from RBI under previous capital requirements are required to increase their net-worth to the present criteria by September 30, 2020, failing which their license shall be cancelled.

  • The object clause of the MOA of the applicant must specify the proposed activity of operating as an E-Wallet issuer.

Process for Non-Bank Entities

  • The non-bank entity shall apply to seek approval for the license in Form-A as prescribed under Regulation 3(2) of the Payment and Settlement System Regulations, 2008.

  • RBI, at first, judges the prima-facie eligibility of the applicant with preliminary screening.

  • Next, the “fit and proper” situation of the applicant and its management is assessed. Including taking feedbacks from regulators, government authorities, etc.

  • If the eligibility criteria are not met, the application shall be returned without a refund of the fees.

  • Other than the eligibility criteria, the application shall also be assessed on other grounds. Such as customer service and efficiency, technical and related requirements.

  • Once all conditions have been fulfilled, the in-principal approval is granted by RBI, which has a validity of 6-months. The entity is required to submit a satisfactory System Audit Report, within this period. Failing which, the in-principle approval shall lapse automatically.

  • The entities which have been granted final approval are to commence their operations within 6-months of the approval. Else the authorization shall lapse automatically. There is a provision of a one-time extension of 6-months by a written request in advance to RBI giving valid reasons. RBI reserves the right to accept or reject this application for extension.

  • The Certificate of Authorization is valid for 5-years from the date of its grant.

  • The license needs to be renewed by applying to RBI 3-months prior to its expiry. If not applied for renewal in time, RBI reserves the right to accept or reject such application.

Documents Required For Prepaid Wallet License

Prior Written Permission by Non-Bank entities

All non-bank entities being granted the Certificate of Authorization to issue PPIs in the country are required to take written approval from RBI in the following situations:

Deployment of Money Collected on PPIs

The funds collected by issuing e-wallets at any point in time would be significant. Moreover, its revenue would also be speedy. If the settlement of funds is certain and on time, the goodwill and trust in the e-wallet system would increase rapidly. To ensure that the settlement is made on time, the issuers are to invest the funds collected only from the issuance of e-wallets in the following way:

The outstanding balance is to be kept as part of “net demand and time liabilities” for maintaining the reserves in the Balance Sheet, to be calculated based on the balances appearing in the accounts of the bank as on the date of reporting to RBI:

Any other entity or persons issuing e-wallets shall keep the outstanding balance reserved in an escrow account with any scheduled bank subject to the following criteria:

  • The account to be maintained with only one bank at one time,

  • If the escrow account is being transferred from one bank to another, the point to remember is that the process is completed in a within a certain time and without affecting the payment cycles,

  • The balance remaining in the account shall always be same as or more than the value of outstanding PPIs and payments due to merchants

  • The amount balance in the account is to be used only for paying the partaking merchant establishments and other permitted payments.

Validity of PPI License

All licenses issued to the PPI issuers by RBI have a minimum validity of 1-year from its issue date to the PPI holder. The users must be intimated well in time by PPI issuers about the expiry of their PPIs by SMS/e-mail/post or by any other means in the language preferred by the user, chosen at the time of issuance of the PPI. Even if the PPI expires, a grace period of minimum 60-days to be given by the PPI issuer to the customer.

Transactions Across Borders

Entities or individuals authorized under FEMA to issue the Foreign Exchange denominated Prepaid Payment Instruments do not need to comply with the provisions of PPI guidelines as per RBI notification. The transaction limit is set for a maximum of Rs. 5000/- for such cross border transactions.

Frequently Asked Questions

What are Prepaid Payment Instruments?
Who can issue and operate PPIs in India?
What types of PPIs are available in India?
Who is an issuer of PPI?
Who is a holder of a PPI?
Is there any limit on adding an amount to PPIs by cash or electronic means?
How is a Prepaid Payment Instrument issued?
How can prepaid meal instruments be issued? Are they allowed to be reloaded?
Is there any transaction fee or other charges levied for using an e-wallet in India?
What happens if there is an error in a transaction but the money gets debited from the wallet ?
Can PPIs be co-branded?
Who can be a partner with the PPI Issuer for co-branding?
For co-branded card, who will be responsible for addressing all customer service features?
Can PPIs be used for outward cross-border transactions? What are conditions?
What are the conditions of using PPIs for cross-border inward transactions?