RBI regulations for semi-closed wallet license

PPI are payment instruments that permit buying of goods & services, comprising financial services, remittance facilities, etc., alongside the value stored on such instruments. Prepaid Wallet License that can be issued in the country are classified under 3 types i.e. Closed System PPIs, Semi-closed System PPIs, and Open System PPIs. Semi-Closed Wallets are used for buying of goods & services, comprising financial services, remittance facilities, etc. at a group of clearly identified merchant locations/establishments which have an exact contract with the issuer (or contract through a payment aggregator/payment gateway) to take the PPIs as payment instruments. These instruments don’t permit cash withdrawal, irrespective of whether they are issued by banks or non-banks.

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Semi-Closed Wallet License

Eligibility to Issue Semi-Closed and Open System PPIs

• Banks which comply with the eligibility criteria, including those stipulated by the respective regulatory department of RBI, shall be permitted to issue semi-closed and open system PPIs, after obtaining approval from RBI.

• Non-bank entities which comply with the eligibility criteria, including those stipulated by the respective regulatory department of RBI, shall be permitted to issue only semi-closed system PPIs, after obtaining authorization from RBI.

Capital and Other Eligibility Requirements

• All entities (both banks and non-banks), regulated by any of the financial sector regulators and seeking approval / authorisation from the RBI under the PSS Act, shall apply to Department of Payment & Settlement Systems, RBI, Central Office, Mumbai accompanied by a No Objection Certificate from their particular regulator, within 45 days of obtaining such clearance.

• Non-bank entities applying for authorization shall be a company incorporated in India and registered under the Companies Act 1956 / Companies Act 2013.

• Non-bank entities having Foreign Direct Investment (FDI) / Foreign Portfolio Investment (FPI) / Foreign Institutional Investment (FII) shall also meet the capital requirements as applicable under the extant Consolidated FDI policy guidelines of Government of India.

• The Memorandum of Association (MOA) of the applicant non-bank entity shall cover the proposed activity of operating as a PPI issuer.

• All non-bank entities seeking authorization from RBI under the PSS Act shall have a minimum positive net-worth of ₹ 5 crores as per the latest audited balance sheet at the time of submitting the application. These entities shall submit a certificate from their Chartered Accountants (CA) to evidence compliance with the applicable net-worth requirement while submitting the application for authorization. The application shall be administered by RBI created on this net-worth which will be maintained at all times. Thereafter, by the end of the third financial year from the date of receiving final authorization, the entity shall achieve a minimum positive net-worth of ₹. 15 crores which shall be maintained at all times. Illustratively, if an entity is issued final authorization on March 1, 2018, then this entity shall achieve a minimum positive net-worth of ₹. 15 crores for the financial position as on March 31, 2020. Similarly, if an entity is issued final authorization on May 1, 2018, then this entity shall achieve a minimum positive net-worth of ₹. 15 crores for the financial position as on March 31, 2021. Subsequently, the audited balance sheet & net-worth as on thirty-first month of March will be specified to RBI within 6 months of the close of FY, failing which the entity may not be permissible to carry out this business.

• Newly incorporated non-bank 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 provisional balance sheet.

• All existing non-bank PPI issuers (at the time of issuance of this Master Direction) shall comply with the minimum positive net-worth requirement of ₹. 15 crores for the financial position as on March 31, 2020 (audited balance sheet). This shall be reported to RBI, along with CA certificate and audited Balance Sheet, by September 30, 2020, failing which the entity may not be permitted to carry out this business. Thereafter, the minimum positive net-worth of ₹. 15 crores shall be maintained at all times. The existing PPI issuers will continue to preserve the capital requirements applicable to them at the time of their authorization.

• All authorized non-bank entities shall submit a certificate from their Chartered Accountants to evidence compliance with the applicable net-worth requirement as per the audited balance sheet of the financial year within 6 months of completion of that financial year.

Authorisation Process

• A non-bank entity desirous of setting up payment systems for the issuance of PPIs shall apply for authorization in Form A (available on RBI website) as prescribed under Regulation 3(2) of the Payment and Settlement Systems Regulations, 2008 along with the requisite application fees.

• The applications shall be initially screened by RBI to ensure prima facie eligibility of the applicants. The directors of the applicant entity shall submit a declaration. RBI will also check the fit & proper status of the applicant & management by obtaining inputs from other regulators, government departments, etc., as deemed fit. Applications of those entities not meeting the eligibility criteria, or those which are incomplete / not in the prescribed form with all details, shall be returned without refund of the application fees.

• In addition to the compliance with the applicable guidelines, RBI shall also apply checks, inter-alia, on certain essential aspects like customer service and efficiency, technical and other related requirements, safety and security aspects, etc. before granting in-principle approval to the applicants.

• Subject to meeting the eligibility criteria and other conditions, the RBI shall issue an ‘in-principle’ approval, which shall be valid for a period of six months. The entity will submit a satisfactory System Audit Report (SAR) to RBI within these 6 months, failing which the in-principle approval will lapse automatically. SAR will be accompanied by a certificate from the Chartered Accountant regarding compliance with the requirement of minimum positive net-worth of ₹ 5 crores. An entity can pursue a one-time extension for a maximum period of 6 months for submission of SAR by making a request in writing, to DPSS, Central Office, RBI, Mumbai, in advance with valid reasons. The RBI reserves the right to decline such a request for an extension.

• Subsequent to the issue of the in-principle approval, if any adverse features regarding the entity/promoters/group or business practices, etc., come to notice, the RBI may impose additional conditions and if warranted, the in-principle approval may be withdrawn.

• Pursuant to receipt of satisfactory SAR and net-worth certificate, the RBI shall grant final Certificate of Authorisation. Entities granted final authorization shall commence business within 6 months from the grant of Certificate of Authorisation failing which the authorization shall lapse automatically. An entity can seek a one-time extension for a maximum period of six months by making a request in writing, to DPSS, Central Office, RBI, Mumbai, in advance with valid reasons. The RBI saves the accurate to decline such a request for an extension.

• The Certificate of Authorisation shall be valid for five years unless otherwise specified and shall be subject to review including cancellation of Certificate of Authorisation.

• Entities seeking renewal of authorization shall apply in writing to DPSS, RBI, Central Office, and Mumbai at least three months before the expiry of the validity of Certificate of Authorisation, failing which RBI reserves the right to decline the request for renewal.

• Any proposed major change, such as changes in product features/process, structure or operation of the payment system, etc. shall be communicated with complete details, by way of a letter, addressed to the Chief General Manager, DPSS, RBI, Central Office, Mumbai. RBI will undertake to answer within fifteen business days subsequently the receipt of above communication at DPSS, RBI, Central Office, and Mumbai.

• Any takeover or acquisition of control or change in management of a non-bank entity shall be communicated by way of a letter to the Chief General Manager, DPSS, RBI, Central Office, Mumbai within fifteen days with complete details, including ‘Declaration and Undertaking’ by each of the new directors if any. RBI shall examine the ‘fit and proper’ status of the management and, if required, may place suitable restrictions on such changes.

Semi-closed PPIs by bank and non-bank PPI Issuers

Semi-closed PPIs supplied by banks & non-banks would have similar features unless then specified.

Prepaid Payment Instruments (PPIs) up to ₹10,000/- by accepting minimum details of the PPI holder

• Bank and non-bank Issuers shall be permitted to issue these PPIs after obtaining minimum details of the PPI holder.

• The least details will comprise mobile number verified with One Time Pin (OTP) and self-declaration of name and unique identification number of any of the ‘officially valid document’ defined under Rule 2(d) of the PML Rules 2005, as amended from time to time.

• These PPIs shall be reloadable in nature and issued only in electronic form, including cards.

• The amount loaded in such PPIs during any month shall not exceed ₹10,000/- and the total amount loaded during the financial year shall not exceed ₹1, 00,000/-.

• The amount outstanding at any point in time in such PPIs shall not exceed ₹.10,000/-

• The total sum debited from such PPIs during any assumed month will not exceed ₹. 10,000/-.

• These PPIs will be used only for buying of goods & services. Funds transfer from such PPIs to bank accounts and also to PPIs of same/other issuers shall not be permitted.

• There is no separate limit on acquisition of goods & services using PPIs & PPI issuer may choose a limit for these purposes within the general PPI limit.

• These PPIs shall be converted into KYC compliant semi-closed PPIs within a period of 12 months from the date of issue of PPI, failing which no further credit shall be allowed in such PPIs. Though, the PPI holder will be allowed to use the balance available in the PPI.

• PPI providers will ensure that this category of PPI is not issued to the same user in future using the same mobile number & similar minimum details.

• PPI providers will give an option to close the PPI at any time & outstanding balance, at the time of closure, will be transferred at the request of the holder to the ‘own bank account of the PPI holder’ (duly verified by the Issuer), after obeying with KYC requirements of the PPI holder. PPI issuers will also permit to transfer the funds back to the source at the time of closure.

• The features of such PPIs shall be clearly communicated to the PPI holder by SMS / e-mail/post or by any other means at the time of issuance of the PPI / before the first loading of funds.

PPIs up to ₹1, 00,000/- after Completing KYC of the PPI Holder

• Bank and non-bank Issuers shall be permitted to issue these PPIs after completing KYC of the PPI holder.

• These PPIs will be reloadable in nature and issued only in electronic form, including cards.

• The amount outstanding shall not exceed ₹ 1, 00,000/- at any point in time.

• The funds can be transferred ‘back to source’ (payment source from where the PPI was loaded) or ‘own bank account of the PPI holder’ (duly verified by the Issuer). However, PPI issuers shall set the limits taking into account the risk profile of the PPI holders, other operational risks, etc.

• PPI will deliver the capacity of pre-registered beneficiaries whereby the PPI holder can register the beneficiaries by providing their bank account details, details of PPIs issued by the same issuer (or different issuers as and when permitted), etc.

• In case of such pre-registered beneficiaries, the fund's transfer limit shall not exceed ₹1, 00,000/- per month per beneficiary. PPI provider will set the limits within this ceiling taking into account the risk profile of the PPI holders, other operational risks, etc.

• The fund's transfer limits for all other cases shall be restricted to ₹10,000/- per month.

• There is no distinct limit on acquisition of goods & services using PPIs & PPI issuer may decide limit for these purposes within the general PPI limit.

• PPI issuers shall clearly indicate these limits to the PPI holders and also provide necessary options to PPI holders to set their own fund transfer limits.

• PPI issuers shall also give an option to close the PPI and transfer the balance as per the applicable limits of this type of PPI. For this purpose, the Issuers shall provide an option, including at the time of issuing the PPI, to the holder to provide details of pre-designated bank account or other PPIs of same issuer (or other issuers as and when permitted) to which the balance amount available in the PPI shall be transferred in the event of closure of PPI, expiry of validity period of such PPIs, etc.

• The features of such PPIs shall be clearly communicated to the PPI holder by SMS / e-mail/post or by any other means at the time of issuance of the PPI / before the 1st filling of funds.