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What are Prepaid Wallets or Prepaid Payment Instruments?
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  • What are Prepaid Wallets or Prepaid Payment Instruments?

What Are Prepaid Wallets Or Prepaid Payment Instruments?

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    What is a Prepaid Wallet License?

    Since demonetisation, the RBI has emphasized on the use of cashless transfer of money for any monetary purpose. Prepaid wallets are such financial instruments which help in the transfer or carrying money in the digital form. RBI is responsible for granting licenses for Prepaid wallets. Many existing and new companies are constantly applying for Prepaid Wallet Licenses. A Prepaid Wallet license is a Prepaid payment instrument that facilitates the purchase of goods and services, including funds transfer, against the value stored on such instruments. The value stored on such instruments represents the value paid for by the holders by

    Cash,
    By debit to a bank account,
    Or by credit card.

    The pre-paid instruments can be issued as

    Smart cards,
    Magnetic stripe cards,
    Internet accounts,
    Internet wallets,
    Mobile Accounts,
    Mobile Wallets,
    Paper Vouchers
    Any such instrument which can be used to access the pre-paid amount (collectively called Prepaid Payment Instruments hereafter)

    Before putting these prepaid instruments for use an entity needs to obtain the Prepaid Wallet License from RBI. The RBI issues guidelines and outlines rules at regular periods for use of Prepaid Wallet License. All the entities who have obtained the license must adhere to these rules.

    Classification of Prepaid Payment Instruments

    Closed System Payment Instruments: These are generally introduced by business establishments to facilitate payments to their business outlets or establishment only. Cash withdrawal or cash redemption is not permitted from these apps. Eg. Ola Wallet.
    Semi-Closed System Payment Instruments: These are payment instruments issued by a person for facilitating the purchase of goods and services from him/it. These instruments do not permit cash withdrawal or redemption. As these instruments do not facilitate payments and settlement for third party services, issues and operation of such instruments are not classified as payment systems. Eg. PayTm Wallet.
    Open System Payment Instruments: These are payment instruments which can be used for the purchase of goods and services, including financial services like funds transfer at any card accepting merchant locations (point of sale terminals) and also permit cash withdrawal at ATMs / BCs. Eg. BHIM UPI.

    Capital and Eligibility Requirements for Issuing Prepaid Wallet License

    Licensed / Scheduled Banks and Registered Non-Banking Financial Companies (NBFCs): These institutions must obtain approval/authorisation from the Reserve Bank of India before starting a prepaid wallet by obtaining the respective license. There are specified capital requirements mentioned for these financial institutions to obtain their Prepaid wallet License.
    All Other Existing Entities: Minimum positive net worth of Rs. 25 crores as per the last audited balance sheet and the same shall be maintained at all times.
    Newly incorporated entities: Entities which may not have an audited statement of financial accounts shall submit a certificate from their Chartered Accountants regarding the current net worth along with a provisional balance sheet. They shall also submit documents in support of the capital infusion and the funds available to undertake this business.
    Applicant Companies with FDI/FII: Minimum capital requirement as applicable under Consolidated FDI policy guidelines of Government of India.
    Non-banking entities registered under Companies Act and applying for authorization: Company incorporated in India and registered under the Companies Act 1956 / Companies Act 2013 and the Memorandum of Association (MOA) of the applicant entity shall cover the proposed activity of operating as a PPI issuer.

    Condition to Issue Prepaid Payment Instrument

    The maximum validity of the prepaid gift instruments shall be three years
    The maximum value of each such payment instrument shall not exceed Rs. 50,000/-
    These instruments shall not be reloadable
    Cash withdrawal shall not be permitted for such instruments.
    Full KYC of the purchasers of such instruments shall be maintained
    The issuer shall maintain the details of the persons to whom such instruments have been issued and make available the same on demand

    How Prepaid Wallet is different from Digital Wallet?

    Digital wallets and prepaid wallets serve different purposes.
    In case of a digital wallet, your money continues to remain in your bank account or credit card.
    In a prepaid wallet, the money moves from your account to either a merchant’s current account or an escrow account depending on the type of wallet.

    Brief Procedure for Incorporation of Prepaid Wallet Business

    STEP-1: – Formation of Company following the Company act, 2013 by applying to Registrar of Company.

    STEP-2: Filling of Application for authorization in Form A as prescribed under Regulation 3(2) of the Payment and Settlement System Regulations, 2008. With fee to Reserve Bank of India for grant of License.

    Name of applicant.
    Constitution of the applicant.
    Address proof of registered office.
    Certificate of Incorporation.
    The main business of the company.
    Management information.
    Statutory auditor of Company.
    Audited balance sheet.
    Name and address of bankers of Company.
    Particulars of payment system including process flow, technology to be used, security features, inter-operability etc.
    Expected benefits to the financial systems.
    Operating risks.
    Amount of finance required.
    Sources of finance.
    Amount of own capital proposed.
    Amount of borrowings expected from banks.
    Rate of return on investment.
    Any other information as may be required by RBI.

    STEP-3:  The applications shall be initially screened by RBI to ensure prima facie eligibility of the applicants

    STEP-4:  Subject to meeting the eligibility criteria and other conditions, the Reserve Bank of India issues an ‘in-principle’ approval. The validity of in-principle approval issued by RBI shall be six months from the date of granting such in-principle approval.

    STEP-5: The entity shall submit a satisfactory System Audit Report to RBI within these six months, failing which the in-principle approval shall lapse automatically. An entity can obtain a one-time extension of six months by making a request in writing in advance with valid reasons. The RBI reserves the right to decline such request for an extension.

    STEP-6: After consideration of all the particulars furnished by entities granted final authorization shall commence business within six months from the grant of Certificate of Authorization failing which the authorization shall lapse automatically.

    STEP-7:  The Certificate of Authorisation shall be subject to review and shall be valid for five years unless otherwise specified.

    Document Required

    Documents Required For Prepaid Wallet License

    ID Proofs of promoters in the company.
    Address proof of the registered office
    Certificate of Company Incorporation
    Objects of the company (Certificate passed by the company’s board)
    Documents for verifying qualification and experience details of the management
    Details of the statutory auditors of the company
    Name and address of company’s banker

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      Advantages of a Prepaid Wallet

      The products are easy to advertise by promoting the benefits of cashless wallets and their safety. One cannot lose money from these wallets and carrying money becomes easy. Also, the problem of having no change is solved as the exact amount can be transferred.
      The transfer of money is quicker compared to net banking especially for transferring money to the new customer. The instantaneous transfer of money makes life simple for users.
      Very little to no cost of operation for these wallets. There is no activation fee or any annual/ monthly charges for using these wallets. Services like internet banking charge their users annually.
      There are lots of rewards and bonuses for customers using these wallets.
      Money can be easily added to these wallets through credit cards, debit cards, or net banking.
      People also get to use the autopay features of these wallets which can be a life saviour for working individuals who tend to forget their payment schedule.

      Period of Validity for Prepaid Wallet License

      Payment wallet license or prepaid wallet license issued by RBI has a minimum validity of 6 months from the date of issuance to the holder
      For non-reloadable wallets, the transfer of outstanding amount at the time of expiry is permissible for the new payment issuer.
      The outstanding balance of the wallets cannot be terminated at the expiry of the license of wallet instrument.

       

      Alternately Call our Legal Expert Now For Free Consultation at 09599653306

      Frequently Asked Questions on What are Prepaid Wallets or Prepaid Payment Instruments?

      • Closed System Payment Instruments: These are generally introduced by business establishments to facilitate payments to their business outlets or establishment only. Eg. Ola Wallet
      • Semi-Closed System Payment Instruments: These are payment instruments issued by a person for facilitating the purchase of goods and services from him/it. These instruments do not permit cash withdrawal or redemption. Eg. PayTm Wallet.
      • Open System Payment Instruments: These are payment instruments which can be used for the purchase of goods and services, including financial services like funds transfer at any card accepting merchant locations (point of sale terminals) and also permit cash withdrawal at ATMs / BCs. Eg. BHIM UPI.

      RBI issues the Prepaid Wallet License.

      Open system wallets are only approved for Banks and Non-Banking Financial Companies (NBFCs).

      Prepaid Wallets loading limit is maximum 50,000 per month and can be done using credit/debit cards or net banking.

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