
Introduction
A Payment Wallet or a Prepaid Payment Instrument (PPI) can be described as an electronic purse, a payment system, or other cash-like instrument that enables a person utilising it to pay for goods and services through a payment site or an electronic mode without availing him or herself of a conventional banking system. PPIs are utilised in buying goods and services, remittance, and sometimes withdrawal of cash. In India, the use and control of PPIs is administered by the Reserve Bank of India (RBI).
Types of PPIs
- Closed System PPIs:
It is a form of credit instrument legal tender, which is advanced by a company to its customers for their use in making purchases within that particular company’s premises.
Forbids the facilitation of payments or funds transfer to third parties.
Example: Electronic commerce company wallet for purchasing goods exclusively from the web store.
- Semi-Closed System PPIs:
These could either be regimes set out by banks, non-bank dealers, or other non-bank financial institutions.
Can be used at a group of clearly identified merchant locations, or establishments.
They do not allow cash withdrawal or redemption.
Example: Digital wallets like Paytm, Phonepe, Mobikwik etc.
- Open System PPIs:
Issued only by banks.
It can be utilised in the purchase of goods and services, transferring of funds, and use of cash point facilities and business correspondents.
Example: Smart cards, which are also commonly known as prepaid cards that are provided by companies like SBI, HDFC, etc.
Following are the eligibility requirement for prepaid wallet licence:
For banks and Non-banking financial institutions (NBFC):
The minimum capital is not fixed for banks and NBFCs. Despite this, the use of PPIs has to first be approved by the RBIs.
For Non-NBFC
The other entities or individuals who want to get a prepaid wallet licence, should have a net worth of not less than 5 Crore INR.
Entities authorised by FEMA:
FEMA-authorised entities have no stipulated minimum capital requirements. However, it means that they can only do PPIs for a few current accounts only in the current position.
Documents required
The documents needed in order to obtain Prepaid Wallet License in India if the company is existing are as follows:
- Copy of the photograph/adhaar card of the applicant
- Proper documental evidence of the registered office
- Certificate of incorporation
- Memorandum of Association
- Articles of Association
- Data related to the statutory auditors
- Audited balance sheet
- Title of the bankers of the company
- The location of the company’s bankers.
Procedure to Obtain Prepaid Wallet License in India
Read Blog: Payment Gateway Integration
PPI licence: Step-by-step information
1. Register your business as a company as provided by the Companies act of 2013
2. Submit prepaid wallet Application Form:
The application has to be submitted in the format of FORM A prescribed by the RBI instructively, in the Department of Payment and Settlement Systems accompanied by all supporting papers.
Fees: Submit the application processing fee as prescribed by the RBI from time to time.
3. RBI screening process
Initial Screening: The RBI will have the first pass review of the application and the documents.
Detailed Evaluation: The RBI then conducts a rigorous analysis of the application in case it gets past the pre-screening process; which may entail;
Assessment of the current financial status of the company and its business strategy.
Evaluation of the information technology and security environment.
Compliance checking of the KYC/AML policy and practices.
4. Granting of “In Principle” Approval by the RBI
The applicant is then given an “In Principle” approval by the RBI provided the applicant satisfies the overall eligibility criteria.
In Principle is the approval from RBI that the applicant company is fit and proper.
Secondly, the aforementioned ‘In Principle’ is valid for six months from the date of the approval by the Reserve Bank of India.
5. Produce a satisfactory audit report to the RBI.
Subsequently, after getting the approval from the Apex Bank, the applicant company must then provide a Satisfactory Audit Report of the company to the Apex Bank not later than six months after the approval. It should be also mentioned that in case of non-completion of the Audit Report by the aforementioned applicant company or its failure or default in submitting the same on time then the granted approval would stand revoked.
Nonetheless, the company will be allowed to delay the delivery of the requested audit report by another six months through writing an appeal to the RBI with adequate justification.
6: Issuance of Final Approval
Only after the assessment of all the details provided by the applicant, the RBI provides the final approval.
Subsequently, the Company is allowed to enter its prepaid wallet or PPI business within half a year from the grant date of the Certificate of Authorisation (COA).
Validity period of the prepaid payment wallet licence and PPIs operating in India.
The validity of Prepaid Wallet Licences and Prepaid Payment Instruments have different regulations and conditions for the validity period in India. Given below are the key points regarding their validity:
1. Prepaid Wallet Licence Validity:
Prepaid Wallet Licences granted by the regulatory authorities have a minimum validity of one year from the last loading and or next reloading dates in the PPIs.
PPI issuers have the liberty of making PPIs available for longer validity periods than the ones suggested herein.
2. Certificate of Payment Wallet Licence Validity
Normal validity of the Certificate of Payment Wallet Licence is five years from the date on which it is issued by the RBI unless otherwise provided.
However, it must be stressed here that this validity comes with the condition that it should undergo a periodic review by the RBI and in case of necessity, the RBI can revoke the licence.
3. Validity of PPIs Issued in Card Form:Validity of PPIs Issued in Card Form:
Credit-style PPIs that are provided on a plastic card always contain the validity period indicated on the face of the card.
As for the holders of such cards, they can get a new card when the existing one expires.
4. Handling of Outstanding Balances:
The balances of payment instruments like the PPIs do not expire at the end of the mentioned specific period but continue to be outstanding.
A gradual depletion process is used and the value is set to pare down at the rate of 10% per month relative to the outstanding value.
The owners of the expired payment cards usually receive a warning of the planned expiration of the card beforehand.
5. Renewal Process:
However, if a user wishes to use a particular PPI after the expiry date, he has to reapply for renewal.
The renewal of the same often necessitates that it be done three months prior to the date on which the PPI is due to expire.
Conclusion
Payment wallets or PPIs occupy a significant place in the digital payment system in India. Through them, a convenient, secure and efficient solution to manage payments is offered hence fomenting the use of cashless and digital money. Looking at the future advancements and changes in legislation it is expected that the importance of PPIs will increase even more.