How to Start a PREPAID WALLET LICENSE

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Overview of Prepaid Wallet License

Under the Payment & Settlement Systems Act, any entity intending to launch a payment wallet system in India must obtain a Payment Wallet License, also referred to as the Certificate of Authorization, from the Reserve Bank of India (RBI). Since the introduction of demonetization, the RBI has actively promoted the use of cashless money transfers for all financial transactions. Prepaid wallets, which facilitate the transfer and storage of money in digital form, play a crucial role in this shift.

Prepaid Wallet Licenses are granted for Prepaid Payment Instruments (PPIs), which simplify the process of purchasing goods and services or transferring money by utilizing the value stored in these instruments. As a result, both new and established companies in India are increasingly applying for such licenses.

Prepaid Payment Instruments (PPIs) encompass devices that allow access to a prepaid amount. These include mobile wallets, smart cards, magnetic stripe cards, and paper vouchers in India.

Types of PPIs in India:

Old Classification of PPIs (2017 Regulations)

  1. Closed System PPIs

    • Usage: Can only be used to purchase goods and services from the issuing company.
    • RBI Supervision: Not regulated by RBI, as it is not part of the payment system requiring authorization.

  2. Semi-Closed PPIs

    • Usage: Used for purchasing goods and services at multiple merchants, including for financial services and remittances.
    • RBI Supervision: Regulated by RBI.

  3. Open PPIs

    • Usage: Issued by banks and usable for transactions at any merchant.
    • RBI Supervision: Regulated by RBI.

New Classification of PPIs

Features Small PPI (Cash Loading & No Cash Loading) Full KYC Gift Cards MTS (Mass Transit System)
Purpose Limited to specific businesses/retailers. Transfer money, withdrawal, and purchases. Redeemable by another person/group. Used for collecting fares and payments in MTS areas.
Conversion Must be converted to Full KYC PPIs within 24 months if cash loaded, else no credits allowed. Not convertible. Not allowed. Not allowed.
Cash Withdrawal/Fund Transfer Not allowed. Allowed with limits. Not allowed. Not allowed.
Monthly/Yearly Loading Limits Monthly: Rs. 10,000. Yearly: Rs. 1,20,000. No separate limit. Issuer decides. Rs. 10,000 max per month. No separate limit. Issuer decides.
Outstanding Amount Limits Cannot exceed Rs. 10,000. Max Rs. 2,00,000. Not allowed. Rs. 3,000 max.
Limits of Fund Transfer Not allowed. Max Rs. 2,00,000/month for pre-registered beneficiaries. Rs. 10,000/month for other transfers. Not allowed. Not allowed.
Interoperability Mandatory. Mandatory. Optional. Exempt from interoperability.

Requirements for Issuance of Prepaid Wallet License

To obtain a Prepaid Wallet License in India, the following conditions must be fulfilled:

  1. Non-bank Entities: Only non-bank entities that have obtained a Payment Wallet License from the RBI and meet the applicable requirements outlined by the RBI's regulatory department are allowed to issue Prepaid Payment Instruments (PPIs).

  2. Legal Status: The entity must be a legally recognized company under the Companies Act of 2013 in India.

  3. Foreign Investment Compliance: Non-bank entities with foreign portfolio investment (FPI), foreign direct investment (FDI), or foreign institutional investment (FII) must adhere to the capital criteria set by the FDI policy guidelines of the Government of India.

  4. MoA (Memorandum of Association): The Memorandum of Association of the non-bank entity must explicitly include the activity of issuing PPIs.

  5. Minimum Net Worth Requirement: The non-bank entity must have a minimum net worth of Rs. 5 crores, as per the latest audited balance sheet when submitting the application for authorization. A certificate from a Chartered Accountant (CA) verifying compliance with the net worth requirement must be submitted with the application. Furthermore, the entity must meet a minimum net worth of Rs. 15 crores by the end of the Financial Year (F.Y.) following the date of receiving final authorization.

  6. Annual Net Worth Compliance: Once authorized, the entity must submit an annual net worth certificate, in the prescribed format, along with the audited balance sheet of the respective Financial Year. For instance, if final authorization is granted on March 1, 2021, the entity must ensure a minimum net worth of Rs. 15 crores by March 31, 2023. Similarly, for authorization granted on May 1, 2021, the entity must achieve the net worth target by March 31, 2024.

  7. Provisional Balance Sheet for New Entities: Newly registered non-bank entities, which do not have an audited financial statement, must submit a provisional balance sheet along with a certificate from their CA, stating the current net worth.

These requirements ensure that entities seeking a Prepaid Wallet License maintain the necessary financial stability and regulatory compliance to operate securely in the financial ecosystem.

Procedure for Obtaining a Prepaid Wallet License

The process for acquiring a Prepaid Wallet License in India involves the following steps:

  1. Application Submission: The first step is to submit an application in Form A to the Reserve Bank of India (RBI). This application must include the required government fee, all necessary documentation, and the approval or authorization requested under Regulation 3(2) of the Payment & Settlement System Regulations, 2008.

  2. Eligibility Screening: Once the application is submitted, the RBI conducts a thorough screening to assess the eligibility of the applicant. If the application does not meet the necessary requirements, is incomplete, or is not in the prescribed format with all required information, it will be returned, and the application fee will not be refunded.

  3. In-Principle Clearance: After reviewing the application, the RBI applies checks on various factors such as customer service, efficiency, technical capabilities, and security measures. If the entity meets all the necessary criteria, the RBI grants in-principle clearance.

  4. System Audit Report (SAR): The company must submit a satisfactory System Audit Report (SAR) to the RBI within six months. Failure to do so will result in the in-principle approval expiring. However, the company can request a single six-month extension, with adequate justification, for submitting the SAR.

  5. Issuance of Prepaid Wallet License: Upon successful submission of the SAR and completion of all requirements, the company will receive the Prepaid Wallet License from the RBI. The company must then commence operations within six months of receiving the license.

Validity of the Prepaid Wallet License

The validity of all Prepaid Payment Instruments (PPIs) in India is a minimum of one year from the date of the last loading or reloading. PPI issuers may choose to provide PPIs with a longer validity period.

If the PPI is issued as a physical card, the consumer can request a new card, and the validity period will be noted on the card.

When the PPI expires, any outstanding balance is not immediately cancelled. A maximum of 10% of the outstanding value can be deducted monthly until it reaches its limit. Additionally, PPI holders will be notified in advance before the expiry of the instrument.

Unless otherwise stated, the Prepaid Wallet License is typically valid for five years. However, the license may be canceled subject to review.

Measures to Prevent Money Laundering

To combat money laundering, the Reserve Bank of India (RBI) has issued guidelines under its "Master Direction - KYC (Know Your Customer)", which apply to all entities involved in issuing Prepaid Payment Instruments (PPIs). These rules encompass Anti-Money Laundering (AML), Know Your Customer (KYC), and Combating the Financing of Terrorism (CFT).

Prevention of Fraud and Security Standards

To reduce the risk of fraud and ensure customer protection, PPI issuers must establish a robust risk management system. They are required to implement the following:

  • If a PPI issuer provides the same login credentials for both PPI and other services, the customer must be informed via SMS, email, or other means. Customers must also have the ability to log out of their mobile account at any time.
  • PPI issuers must ensure secure login and authentication procedures to prevent multiple failed login attempts. This may include timeout features or other security measures.
  • All physical and virtual PPI cards must have Additional Factor Authentication (AFA), as required for debit cards.
  • Issuers must provide customers with options to set transaction limits, such as on the transaction value and the number of transactions allowed. There should also be a cap on the number of beneficiaries that can be added in a day, with further verification.
  • Customers must be notified whenever a beneficiary is added to the PPI.
  • After completing a transaction, issuers must send notifications that include the available balance in the wallet.
  • PPI issuers should monitor the number of transactions conducted daily, both per beneficiary and for the wallet as a whole.
  • Appropriate fraud detection and prevention mechanisms must be in place, along with systems for escalating suspicious activities.

Consumer Protection and Grievance Redressal Framework

PPI issuers must provide clear and concise terms and conditions regarding the following:

  • Any fees associated with the use of prepaid wallets.
  • The expiration date of the prepaid instrument, and any conditions regarding its renewal or replacement.
  • Customer assistance contact details, including the issuer’s website.

A formal and accessible grievance redressal mechanism must be set up, including the appointment of a Nodal Officer to manage complaints, escalations, and response times. If complaints are filed via mobile or website platforms, the registration process must be easy to use.

Additional points for consumer protection:

  • PPI issuers must ensure the grievance redressal process is publicly accessible and available in multiple languages, including Hindi, English, and the local language.
  • Contact details for the Nodal Officer must be prominently displayed on mobile apps, websites, and physical cards.
  • Separate complaint numbers should be provided for registering and following up on grievances.
  • PPI issuers must address customer complaints promptly, ideally within 48 hours of receipt, and respond within 30 days.

PPI issuers must also raise awareness about:

  • Password security.
  • Safe usage of PPIs.
  • Procedures for handling card or authentication data loss, fraud detection, and abuse.

Transactions Across Borders

As per RBI guidelines, entities permitted to issue PPIs in foreign currency under the Foreign Exchange Management Act (FEMA) are exempt from standard PPI rules. These entities are allowed to transact in foreign currency, with a maximum limit of Rs. 5,000 per transaction.

Interoperability

Interoperability refers to the technical compatibility of payment systems, allowing them to work together seamlessly. PPI issuers must follow the technical standards set by the National Payments Corporation of India (NPCI) and relevant card networks to ensure interoperability with Unified Payments Interface (UPI) and card networks. The NPCI and card networks will facilitate PPI issuer participation in these systems.

Documents Required for Obtaining a Prepaid Wallet License

To apply for a prepaid wallet or payment bank license, the following documents must be submitted:

  • Name of the Applicant
  • Address proof of the Registered Office
  • Certificate of Incorporation
  • Detailed report on the entity's primary operations
  • Administrative Information
  • Auditor details for the business
  • Audited financial statements for the latest financial year
  • Name and address of the company’s bankers
  • Proposed capital amount
  • Expected benefits to the Indian financial system
  • Sources of finance
  • Any additional information requested by the RBI

Benefits of Holding a Prepaid Wallet License

There are several advantages to having a Prepaid Wallet License or using prepaid wallets:

  • Security: Prepaid wallets are stored securely within mobile devices, eliminating the risk of physical theft or loss that can occur with traditional wallets.

  • Eliminates Cash Issues: Using prepaid wallets for payments removes the common issue of carrying physical cash, especially for small transactions.

  • Instant Transfers: Unlike bank transfers, which may take hours to process, prepaid wallets allow for immediate money transfers, ensuring quick and hassle-free payments.

  • Low or No Additional Costs: Prepaid wallets often have minimal or no fees. There are no initiation, monthly, or annual fees typically associated with IMPS, web banking, or cheque cards.

  • Incentives and Rewards: Many prepaid wallets offer rewards and bonuses for referring others, providing added value for users.

  • Easy Fund Loading: Adding money to prepaid wallets is simple, with quick transfers through net banking or debit cards.

  • Auto-Payment Feature: For busy individuals, prepaid wallets often offer an auto-payment feature, helping them avoid missed payment deadlines.

 
 
 
 

How CA Anytime Will Help You?

At CA Anytime, we offer expert guidance and full online support throughout the process of obtaining your Prepaid Wallet License. Our comprehensive compliance solutions and application tracking services ensure a smooth and efficient experience. Below are some key benefits of working with us:

  • Resolution of all queries: We address any questions related to documents and procedural requirements, providing support from start to finish in obtaining a PPI license from the RBI.
  • End-to-end assistance: We assist you with business plan creation, IT planning, and application filing.
  • Document collection: We will gather all necessary documents and data for your incorporation. A member of our expert team will contact you for any additional information or documents, if required.
  • Transparency and clarity: We provide clear and accurate estimates of costs, documents, and requirements for the entire process before starting.
  • Efficient application preparation: Once the required paperwork is gathered, we promptly prepare and file your application. You will be notified as soon as your application is in progress.
  • Successful completion: Upon successful approval, we provide both electronic and hard copies of all relevant documents.