Payment Wallet License

To ease money transfers and make it tech-savvy the Reserve Bank of India (“RBI”) has taken many steps to make payments fast, hence the onset of payment wallet license or prepaid wallet license. The different forms of payment wallet license are:

• Debit card or credit card
• Internet wallets
• Mobile accounts
• Paper vouchers

These payment services are operated under financial regulation and performed via mobile or cards or the internet. The regularity and issuing authority for issuing the Payment wallet license or a prepaid payment license is RBI. RBI is also responsible for issuing guidelines and rules for prepaid payment wallets. Payment wallet instruments are instruments that facilitate the purchase of goods and services against the stored value on such instruments. The prepaid instruments can be issued as magnetic stripe cards, smart cards, internet accounts, mobile accounts, mobile wallets and paper vouchers.

Types of Payment Wallets in India

The payment wallets in India are classified as follows as per RBI: Closed System Payment: The closed system wallet is a wallet that is offered by the company to its customers which can be used only for purchasing on the online platform that the company operates on. Example: Myntra, Cleartrip, etc. Advantages:

• Purchasing goods and services
• Receive refund and cashback

Limitations:

• No cash withdrawal or redemption is allowed from the wallet.
• It is closed, and hence the balance in the wallet can only be used for purchasing on the same platform.

Semi-closed Payment: This wallet is used to buy goods and services, and it acts as a payment instrument that is redeemable by an identified merchant that contracts specifically with the issuer to accept the payment instrument. Example: Paytm, Mobikwik, Freecharge, etc. Advantages:

• This can be used to buy goods from affiliated merchants.
• It can also be used for purchasing from the wallet issuer.
• Transfer of money among holders of wallets.

Limitations:

• This cannot be used for withdrawing money from ATMs.

Open System Payment: This covers all the limitations of the Closed and semi-closed system. This can be used for the purchase of goods and services and also permit cash withdrawal at an ATM. Example: Visa Card, Master Card, Rupay Card, etc. Advantages:

• Can be used for the purchase of goods by swiping cards.
• For cash withdrawal.
• It can be used at the PoS machine for making payments.
• It can be used for internet and mobile banking.

Procedure For Incorporation Of Prepaid Wallet

Step 1 – Formation of the company under the Companies Act, 2013 by applying to the Registrar of Companies. 
Step 2 – File application for approval in Form A as per Regulation 3(2) of the Payment and Settlement Systems Regulations, 2008 along with the requisite fees to the Reserve Bank of India for grant of license. 
Step 3 – The basic screening process will take place by the RBI to ensure the prima facie eligibility of the applicant. 
Step 4 – Subject to the fulfilment of the eligibility criteria and other conditions the Reserve Bank of India issues an ‘in-principle’ approval. The validity of this approval will be 6 months from the date of granting of the approval. 
Step 5 – The company must submit a satisfactory system audit report to RBI within six months failing which the ‘in-principle’ approval granted by the RBI will lapse, and the company can appeal for an extension of six months in advance in writing, specifying the valid reasons. 
Step 6 – Post consideration of all particulars furnished, the entities are granted final approval. The company shall commence business within six months from the grant of Certificate of Authorization.

Documents Required For Submission Of Application

• Applicant status
• Proof of registered office
• Certificate of Incorporation
• A detailed report of the principle business of the company
• Detailed information about the management of the company
• Statutory audit report
• Recent audited balance sheet
• Name and address details of bankers of the company
• Payment system details with process flow, technology, security features and interoperability
• Benefits expected to the Indian Financial system from the company
• Capital amount proposed
• Sources of funds
• Any other information required by RBI

Eligibility Criteria For Issuing Payment Gateway Wallet License

• Scheduled Banks and Non-Banking Financial Institution: Banks that have permission from RBI to provide Mobile Banking Transactions shall be permitted to launch mobile based prepaid payment instruments (mobile wallets & mobile accounts)
• Companies incorporated under Companies Act: A company incorporated under the Companies Act can issue a prepaid wallet only if it is permitted as per the object clause of the Memorandum of Association (MOA).
• Mobile Service providers: Mobile service providers are permitted to issue mobile prepaid value. This value can be used for purchasing talk time and will be restricted only to the purchase of value-added digital contents/services which are of use in mobile phones. The use of such prepaid value for the purchase of other goods or services will not be permitted.
• Entities having Foreign Direct Investment: These companies must have a minimum capital as per the FDI policy guidelines.

Capital Requirements For Eligible Entities

• Banks and non-bank finance companies: The entities that meet the capital adequacy requirements prescribed by the RBI will be permitted to issue prepaid instruments. Such requirements must be fulfilled from time to time.
• Companies: A financial entity registered under the Companies Act, 2013, with its primary objective of financial business looking for payment wallet authorisation must have a minimum positive net worth of 5 crore.
• FDI entities: For entities governed under the Foreign Exchange Management Act (FEMA) who are authorised to issue a foreign exchange, prepaid instruments are exempt from the purview of these guidelines. Use of payment instruments shall be limited and permitted to current account transactions only and subject to the limits prescribed under the Foreign Exchange Management (Current Account Transactions) Rules, 2000, as amended from time to time.

There are many benefits of prepaid wallets, and they have become the new age money transfer mechanism. These wallets can never be stolen or lost; it is a fast track method for transfer, and the maximum time for a transfer is 24 hours. They can be easily loaded and come with a lot of incentives on the increased spend on them. Also, there are no extra charges for the activation of such wallets.

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