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
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.
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.
This is the kind of PPI that facilitates customers to keep money in this wallet and use this money anytime, anywhere. So by using this wallet, you can pay online for any purchase of goods & services and withdrawals at ATMs are also possible. Customers can use this money anytime and anywhere.
This type of wallet also permits purchase of financial services such as funds transfer at merchant locations. All Visa and Master Cards fall into this section. Only banks are empowered to issue and administer open-wallets. An example in India is M-Pesa by Vodafone India Ltd in alliance with ICICI Bank Ltd.
A Closed Wallet is issued by a company or establishment to enable its user to purchase goods & services exclusively from that company. These PPIs do not allow cash withdrawal or making payments at other merchant locations. Such as Airtel money, earlier allowed only for paying bills of or recharging Airtel numbers.
Other entities that may issue these are individuals, sole-proprietorships, partnership firms, etc. As they cannot be used for payments and settlement for third party transactions, their issuance and operation do not require approval by RBI.
These wallets can be used for purchasing goods or services from certain identified and exclusive merchant locations or establishments, only, which are in contract with the issuer to accept the wallet payments, including financial services. Cash withdrawals and redemptions are not allowed with them either. An example is the Citrus Cash App.
Entities including NBFCs and individuals are permitted to carry on the business of semi-closed wallets after getting a license from RBI.
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:
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.
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:
Any takeover or acquisition of control of a non-bank entity, which may or may not result due to a change of management.
Any change in the management of the non-bank entity, due to the change in more than 30% of the directors (excluding independent directors). Prior approval from RBI is not required for those directors who get re-elected on retirement by rotation.
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:
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.
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.
RBI states a comprehensive list of documents for a company to register itself as CIC. Only some of them can be listed here, as RBI may ask for other documents, as it considers necessary.
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