A summary of the Indian law on Online Wallets!

1. PREPAID PAYMENT INSTRUMENTS - DIFFERENT TYPES OF WALLETS
(i) Prepaid Payment Instuments
A wallet is a form of prepaid payment instrument (“PPI”), which facilitates purchase of goods
and services including financial services, remittance facilities etc. against the value that is stored
on such wallets. Wallets in India are governed by Payments and Settlements Act, 2007 (“Act”).
The Act empowers the Reserve Bank of India (“RBI”) to lay down policies to regulate payment
systems. RBI’s Master Direction dated 11th
October 2017 (“Master Direction”) governs the
issuance and operation of PPIs.
The Master Direction provides for three types of PPIs, closed, semi-closed and open.
CLOSED PPI SEMI-CLOSED PPI OPEN PPI
ISSUER Can be issued by any
entity, including
individuals, sole-
proprietorships,
partnership firms etc.
Can be issued by any
banking or non-banking
entity.
Can be issued by
banking entities only.
APPROVALS/
AUTHORISATI
ON
Not Required. RBI’s authorisation and
approval are required.
RBI’s authorisation
and approval are
required.
PURPOSE To avail goods and
services solely from
the issuing entity.
Closed PPIs cannot be
used for
payments/settlement
for third party
transactions.
To purchase goods and
services, including
financial services,
remittance facilities,
etc., from a group of
clearly identified
merchant locations/
establishments, which
have a specific contract
with the issuing entity
(or contract through a
payment
aggregator/payment
gateway) to accept the
PPIs as payment
instruments. Cash
withdrawal or
redemption is restricted
(whether the issuing
entity is a banking entity
or not).
To purchase goods
and services,
including financial
services, remittance
facilities, etc. Banks
issuing an open PPI
also facilitate cash
withdrawal at
ATMs/Point of Sale
(PoS)/Business
Correspondents
(BCs).
TRANSFER OF
FUNDS
Transfer of funds is
restricted.
Transfer of funds is
permitted.
Transfer of funds is
permitted.

2. (ii) Co-branding
Who can enter a co-branding arrangement: Any registered company or a licensed bank (“Non-
Registered Entity”) can co brand with an entity which is authorised by the RBI to offer a semi
closed or open PPI. This will enable the Non-Registered Entity to avail the features of the
relevant semi closed or open PPI as the case may be.
License Required: One of the two parties in the arrangement must procure the appropriate PPI
license from the RBI.
Purpose: To purchase goods and services, from all merchants that the co-branded PPI has
partnered with.
(iii) Storing and Transferring of Funds of Semi-Closed and Open PPIs
Transfer of funds: Funds from the PPI can be transferred to the bank account of the holder or
registered beneficiary (registered with the Issuer of the PPI) at any point of time. However, the
amount transferred to a registered beneficiary cannot exceed INR 1,00,000 per beneficiary per
month. These PPIs are also reloadable in nature.
Maximum amount that can be transferred to other persons: INR 10,000 per month.
Maximum amount that can be transferred for purchase of goods and services: Issuer can set
the limit (within INR 1,00,000).
Maximum amount that can be stored: INR 1,00,000.
Maximum amount that can be loaded: INR 50,000 per month.
Other: The Issuer must provide the holder with an option at the time of issuing such PPI, to
provide bank account details of the holder in order to transfer the funds in the PPI, if the PPI
expires or needs to be closed. The Issuer must also through SMS/email/post, inform the holder,
of the features of the PPI at the time of issuance of such PPI.
(iv) General Safeguards
The Know Your Customer (“KYC”) / Anti-Money Laundering (“AML”) / Combating Financing of
Terrorism (“CFT”) guidelines issued by the Department of Banking Regulation and the Master
Direction – KYC Directions Circular issued by the RBI, shall apply to all the entities issuing co-
branding, semi-closed PPIs and open PPIs.
(v) Eligibility Criteria To Issue Open And Semi-Closed PPIs
Banking and Non-banking entities that comply with all the required criteria stipulated by
regulatory departments, after approval from the RBI, are permitted to issue semi-closed and
open PPIs, while the latter are only permitted to issue semi-closed PPIs.
Non-banking entities must seek an approval from the RBI and satisfy the below eligibility criteria
in order to issue a semi closed PPI:

3. - Non-banking entity must be registered under the Companies Act 1956/Companies Act
2013.
- Non-banking entity that has any form of foreign investments must meet the capital
requirements as applicable under the extant Foreign Direct Investment policy issued by
the RBI.
- The Memorandum of Association (MOA) must cover the proposed activity of operating as
a PPI issuer.
- Non-banking entity must have a minimum positive net-worth of INR 5 crores as per the
latest audited balance sheet at the time of applying for approval and by the end of the
third financial year from the date of receiving final authorization - it must achieve a
minimum positive net-worth of INR 15 crores which must be maintained at all times.
(vi) Validity of PPIs License
All PPIs issued by an entity must have a minimum validity of one year from the date of its
issuance to the PPI holder. The PPI Issuers must intimate the users about the expiry of their PPIs
in a timely manner.
Do reach out to our TMT Group, should you have any comments or question.
Mathew Chacko
mathew@spiceroutelegal.com
Ankita Hariramani
ankita.hariramani@spiceroutelegal.com
Aadya Misra
aadya.misra@spiceroutelegal.com
Aishwarya Todalbagi
aishwarya.todalbai@spiceroutelegal.com