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A Money Wallet License allows entities to operate digital wallets or electronic payment systems that enable users to store, transfer, and make payments using electronic funds. This license is regulated by financial authorities to ensure secure, transparent, and compliant digital transactions. In India, the Reserve Bank of India (RBI) regulates and issues licenses for such wallets under the Payment and Settlement Systems Act, 2007 and the Master Directions on Issuance and Operation of Prepaid Payment Instruments (PPIs).
Key Features of a Money Wallet (Prepaid Payment Instrument - PPI):
Types of Wallets:
Closed Wallet: Can only be used for transactions within the issuer's network (e.g., for purchases at a particular merchant or platform).
Semi-Closed Wallet: Can be used for transactions within a group of merchants but cannot be redeemed for cash.
Open Wallet: Allows users to perform a wide range of transactions, including payments to any merchant, and can be linked to a bank account (e.g., Paytm, Google Pay).
Core Activities:
Storing funds digitally for transactions.
Facilitating peer-to-peer transfers, payments, and bill settlements.
Offering cashback, loyalty points, or rewards for using the wallet.
Eligibility Criteria for Money Wallet License:
Entity Type:
The applicant must be a company registered under the Companies Act, 2013 or the Companies Act, 1956.
Capital Requirements:
Minimum Net Owned Funds (NOF) of INR 5 crores (as per RBI regulations).
Technology Infrastructure:
A secure and scalable IT infrastructure to process payments, store funds, and protect sensitive data.
Compliance with RBI Guidelines:
The platform must comply with the RBI’s guidelines for KYC (Know Your Customer), AML (Anti-Money Laundering) norms, and customer protection.
Fit and Proper Criteria:
The directors, promoters, and key personnel should have no criminal history and possess a sound financial background.
Agreement with Banks:
The wallet provider must enter into an agreement with a scheduled commercial bank to ensure that funds are held in a secure manner (in case of semi-closed or open wallets).
Types of Money Wallet Licenses:
Prepaid Payment Instruments (PPI) License:
For entities that issue prepaid instruments, including digital wallets, cards, and vouchers.
Full KYC/Low KYC Wallet:
Full KYC Wallet: Wallets that allow users to perform a wide range of transactions after completing full identity verification.
Low KYC Wallet: Wallets with limited functionality, usually allowing small transactions (up to INR 10,000/month) without full KYC.
Application Process for Money Wallet License:
Incorporation of Company:
Incorporate the entity under the Companies Act and ensure that the memorandum of association includes payment services as a business activity.
Meet Capital Requirements:
Ensure the company meets the minimum NOF of INR 5 crores, as required by the RBI.
Prepare the Business Plan:
Draft a comprehensive business plan detailing:
Types of services offered.
Target market and customer segmentation.
Risk management framework.
Revenue model and operational details.
Compliance Documents:
Submit the following documents:
Memorandum and Articles of Association.
KYC details of directors and promoters.
Proof of capital adequacy (NOF).
IT system and security framework.
Details of partnership with commercial banks for fund management.
Application Form:
Complete the RBI Application for PPI form and submit it along with required documents.
Fee Payment:
Pay the non-refundable application fee as prescribed by the RBI.
Submission to RBI:
Submit the application to the RBI through their online COSMOS portal and send physical copies to the regional RBI office.
Application Review:
The RBI reviews the application, background checks the directors and promoters, and may conduct a site inspection.
License Grant:
If the application meets all the requirements, the RBI grants the PPI License to the company, which allows it to operate the digital wallet legally.
Post-Licensing Requirements:
KYC and AML Compliance:
Adhere to Know Your Customer (KYC) and Anti-Money Laundering (AML) guidelines to ensure secure transactions and customer identity verification.
Escrow Account for Semi-Closed/Open Wallets:
Ensure that customer funds are held in an escrow account with a commercial bank.
Transaction Limits:
Ensure that the wallet platform enforces transaction limits (e.g., INR 10,000 for Low KYC wallets) and that full KYC is conducted for higher-value transactions.
Periodic Reporting to RBI:
Submit periodic returns to the RBI, including details of the wallet transactions, customer base, and operational compliance.
Security Measures:
Implement strong cybersecurity measures to protect user data and funds. Comply with data privacy and protection laws.
Benefits of a Money Wallet License:
Legal Recognition:
Operate as a licensed entity, providing assurance to users and partners.
Market Access:
Tap into a growing market of digital payments, e-commerce, and financial inclusion.
Customer Trust:
Boost customer confidence with regulatory compliance and enhanced security measures.
Operational Expansion:
Access the ability to partner with banks, merchants, and other financial services to expand the wallet’s capabilities.
If you need assistance with the application, compliance requirements, or preparing the business plan for the wallet, feel free to ask!