As India embraces a digital-first economy, Prepaid Payment Instruments (PPIs) have emerged as key tools in reducing dependency on cash. These instruments, regulated by the Reserve Bank of India (RBI), allow users to make secure payments and transfers through funds preloaded into a digital or physical medium. Any entity wishing to issue or operate PPIs must obtain a PPI License from the RBI, ensuring compliance with regulatory standards and consumer protection guidelines.
What Are Prepaid Payment Instruments (PPIs)?
Prepaid Payment Instruments are financial tools that store a user’s prepaid funds for the purpose of making transactions. These instruments can be used to pay for goods and services, transfer money, or remit funds. Depending on the format, they can exist as:
- Mobile wallets
- Smart cards
- Magnetic stripe cards
- Gift vouchers
- NFC-enabled wearables
The RBI governs the use of PPIs under the Payment and Settlement Systems Act, 2005, ensuring accountability, interoperability, and safety.
Users can load money into these instruments via multiple methods—such as cash, credit cards, debit cards, bank transfers, or even from other PPIs—making them a flexible payment solution for both businesses and consumers.
Categories of Prepaid Payment Instruments
The Reserve Bank of India categorizes PPIs into three types, each with distinct use-cases and regulatory requirements:
1. Closed System PPIs
- Definition: These are issued by an entity for exclusive use within its own ecosystem.
- Restrictions: Cannot be used to make payments to other merchants or withdraw cash.
- RBI Regulation: Not classified as a payment system; therefore, no RBI approval is needed.
Example: Brand-specific gift cards (like Amazon or Starbucks), metro rail cards, or loyalty program vouchers.
These PPIs serve as an internal payment mechanism and are primarily used for promotional activities or within single-entity commerce systems.
2. Semi-Closed System PPIs
- Definition: Usable at a network of pre-approved merchant partners.
- Restrictions: Cash withdrawal is not permitted.
- RBI Approval: Mandatory for both banks and non-banking entities.
Example: Digital wallets such as Paytm, PhonePe, Razorpay, MobiKwik, and Instamojo.
Semi-closed PPIs are widely used across retail, e-commerce, travel, and utility payment sectors. These instruments strike a balance between usability and security, making them a popular choice for everyday transactions.
3. Open System PPIs
- Definition: Can be used for purchases, fund transfers, and cash withdrawals.
- Issuance: Only RBI-licensed banks are authorized to issue open system PPIs.
Example: Debit cards, prepaid cards issued by banks, and certain fintech-enabled bank wallets.
These instruments offer maximum flexibility and interoperability, supporting usage across point-of-sale terminals, ATMs, and online marketplaces, both in India and abroad.
As digital payments grow across India, Semi-Closed Prepaid Payment Instruments (PPIs) have emerged as a flexible option for transactions at multiple, but pre-approved, merchants. Unlike open PPIs, semi-closed instruments have usage limitations and are not universally accepted. However, they offer enough versatility to cater to most routine consumer transactions in both urban and semi-urban areas.
Types of Semi-Closed PPIs
The Reserve Bank of India (RBI) has further classified semi-closed PPIs into specific sub-categories depending on the level of customer verification (KYC) and funding method. Here’s a breakdown:
1. Minimum Detail PPIs (Small PPIs)
These instruments are issued based on limited customer information, including an OTP-verified mobile number, a self-declared name, and any valid government-issued ID number.
They fall into two sub-types:
- PPIs with Cash Loading (Max ₹10,000): These can be loaded with cash but must be upgraded to a full-KYC PPI within 24 months to remain operational.
- PPIs without Cash Loading (Max ₹10,000): These can only be loaded through online or banking channels—no physical cash top-ups are allowed.
2. Bank Account-Loaded PPIs
These PPIs are linked to and funded solely via a customer’s bank account. No other source of loading, including cash or third-party instruments, is permitted. The maximum limit under this type is ₹10,000. It’s a secure alternative with tighter control over transaction sources.
3. Full-KYC PPIs
These are the most versatile instruments under the semi-closed PPI category. Issued only after full Know Your Customer (KYC) verification, these allow:
- Purchase of goods and services,
- Peer-to-peer fund transfers,
- Cash withdrawals at designated outlets.
Full-KYC PPIs are ideal for users seeking higher transaction limits and multi-purpose usability under RBI’s secure framework.
Who Can Issue Semi-Closed PPIs in India?
Both banking and non-banking institutions can issue semi-closed PPIs, but they must obtain prior authorization from the Reserve Bank of India. The requirements vary for each:
Banks
- All banks that satisfy RBI’s prescribed criteria are eligible.
- Special permission is required to issue mobile-based PPIs.
Non-Banking Financial Entities (NBFCs/Fintechs)
- Must be incorporated in India.
- Require a minimum paid-up capital of ₹5 crore.
- Must maintain a positive net worth of at least ₹1 crore at all times.
- Can issue only semi-closed and closed system PPIs.
- Must maintain an escrow account with a scheduled commercial bank for managing funds.
Customer Protection Framework in PPI Issuance
RBI emphasizes consumer safety and transparency as a cornerstone of PPI regulation. Every authorized issuer is required to:
- Clearly communicate all charges, fees, and terms associated with the PPI.
- Display customer support details (helpline, email, and grievance portal) prominently.
- Share terms on instrument validity, expiry, and any value depreciation post-expiry.
Security & Technology Measures
To protect users, RBI mandates the following digital safeguards:
- End-to-end encryption and multi-factor authentication.
- Compliance with PCI-DSS (Payment Card Industry Data Security Standard).
- Deployment of firewalls and intrusion detection systems.
- Periodic cybersecurity audits to eliminate vulnerabilities.
These protective protocols ensure that users feel secure while transacting and that the PPI ecosystem remains resilient and trustworthy.
What is the PPI Limit in India?
The Reserve Bank of India (RBI) regulates specific balance and transaction limits on Prepaid Payment Instruments (PPIs) to ensure secure and responsible use within the digital payments ecosystem. These limits vary based on the type and KYC status of the PPI:
- Full-KYC PPIs:
Users can hold a maximum balance of ₹1,00,000 at any given time. These PPIs offer the highest flexibility in transactions, including cash withdrawals and fund transfers. - Minimum-Detail (Small) PPIs:
The balance is capped at ₹10,000 per month, with restrictions on cash loading depending on the sub-category. For example, some small PPIs disallow cash loading altogether, allowing only electronic top-ups. - Loading Limits:
The amount loaded via online or electronic channels must adhere to the overall cap set for the respective PPI type.
These prescribed limits are designed to minimize risks such as fraud and money laundering, while encouraging wider adoption of secure digital payment methods.
Recent Updates and Innovations in Prepaid Payment Instruments
The PPI landscape in India continues to evolve rapidly, shaped by regulatory directives and technological advancements:
- Public Transport Payments:
RBI has permitted PPI issuers to introduce digital payment solutions specifically for public transport systems, improving commuter convenience and reducing cash handling. - Paytm Payments Bank Restrictions:
Effective March 15, 2024, Paytm Payments Bank is restricted from accepting deposits or credits into customer wallets, accounts, or FASTags, as per RBI guidelines. - Emerging Innovations:
New product offerings such as virtual prepaid cards, seamless integration of wallets with UPI, and Buy Now, Pay Later (BNPL) services are transforming how users engage with digital payments, making transactions smoother and more accessible.
Staying informed about such regulatory changes is critical for businesses and users to remain compliant and leverage new opportunities in the payment ecosystem.
RBI-Approved PPI Issuers: Banks and Non-Banks
The RBI authorizes both banking and non-banking entities to issue PPIs under strict regulatory oversight. Here’s a snapshot of prominent issuers as of early 2024:
Bank PPI Issuers
More than 50 banks have received RBI approval, including major players:
- HDFC Bank
- ICICI Bank
- State Bank of India (SBI)
- Axis Bank
- Airtel Payments Bank
- Paytm Payments Bank (subject to current restrictions)
- Kotak Mahindra Bank
- IndusInd Bank
- Yes Bank
These banks offer diverse PPIs such as debit cards, prepaid cards, and mobile wallets catering to various customer needs.
Non-Banking PPI Issuers
The RBI has licensed numerous non-bank companies, primarily offering semi-closed PPIs, including:
- PhonePe Private Limited
- PayU Payments Private Limited
- Razorpay Technologies
- Amazon Pay India Private Limited
- MobiKwik Systems Limited
- Ebix Payment Services
- Ola Financial Services
- Cashfree Payments India
- Spice Money Limited
- Google India Digital Services
- Zoho Payment Technologies
The complete list of authorized non-bank issuers exceeds 100 entities, each operating within RBI’s prescribed validity and scope guidelines.
Eligibility Criteria for Obtaining a PPI License in India
To secure a PPI License from the Reserve Bank of India, applicants must meet stringent eligibility requirements that emphasize financial stability, legal compliance, and operational capability.
Key Eligibility Conditions:
- Entity Type:
Only scheduled banks and RBI-authorized Non-Banking Financial Companies (NBFCs) can issue mobile-based PPIs (e.g., mobile wallets). - Company Registration:
Entities must be registered under the Companies Act, 2013. The company’s Memorandum of Association (MOA) must explicitly include the issuance of PPIs as an objective. - Financial Strength:
The applicant must demonstrate a minimum net worth of ₹15 crore, ensuring sufficient capital to manage operational risks and maintain customer trust.
Meeting these criteria allows entities to operate under RBI supervision and contribute to India’s expanding digital payment infrastructure.
Documents Required for Prepaid Wallet (PPI) License in India
To apply for a Prepaid Payment Instrument (PPI) License, the Reserve Bank of India (RBI) mandates submission of key documents that validate the applicant’s legal standing, financial stability, and operational capability. Below is the essential documentation required:
- Applicant’s Name and Registered Office Address Proof:
Accurate and verifiable corporate identity details are crucial to avoid delays in processing. - No Objection Certificate (NOC) from RBI:
Especially for banks and NBFC applicants, this certificate indicates RBI’s initial consent to the licensing process. - Certificate of Incorporation:
Proof of legal existence registered under the Companies Act, 2013. - Business Profile and Operations Overview:
Detailed description of the company’s core business activities, especially relating to digital payments. - Managerial and Board Profiles:
Information about directors and key management personnel to assess governance and leadership capability. - Detailed Project Report & Business Plan:
Comprehensive outline of the PPI operations plan, including technology infrastructure and customer service strategy. - Funding Sources:
Disclosure of equity, debt, or internal accruals used to finance the business. - Proposed Capital Investment:
Declaration of the amount committed towards PPI operations. - Audited Financial Statements:
Last fiscal year’s balance sheet for assessing financial health. - Banker Details:
Names and addresses of bankers for verification purposes. - Statutory Auditor Appointment Details:
To ensure audit compliance and financial transparency. - Profit Projections and Market Strategy:
Outline of expected profits and approach towards the Indian financial market. - Additional RBI-Requested Documents:
The RBI may ask for further information during the review; prompt submission is essential for smooth processing.
Process for Obtaining a PPI License in India
The licensing process involves several critical steps under the Payment and Settlement Systems Regulations, 2008:
- Application Submission:
The applicant files a formal application with the RBI, including all required documents and government fees. Accuracy and completeness are vital to avoid rejection. - Screening and Evaluation:
RBI conducts a detailed review of eligibility, technological readiness, security measures, and customer service capabilities. - In-Principle Approval:
Upon satisfactory screening, RBI grants a six-month in-principle approval to set up infrastructure and ensure compliance. - System Audit Report (SAR):
An independent auditor prepares this report covering technical, operational, and security aspects of the proposed PPI system. SAR submission is mandatory before final approval. - Extension Request (if needed):
Applicants can request a single six-month extension with valid reasons and supporting documents. - Final License Issuance:
After reviewing SAR and compliance, RBI issues the PPI License, authorizing the applicant to operate prepaid payment instruments in India.
Transactions Across Borders with PPIs
Cross-border usage of PPIs is governed by additional regulations under the Foreign Exchange Management Act (FEMA), 1999:
- Only entities authorized to issue foreign currency PPIs under FEMA can facilitate cross-border transactions.
- The transaction limit for foreign currency PPI usage is capped at ₹5,000 to mitigate risks.
- Cross-border PPIs are typically used for travel, education, or other approved foreign payments.
- Compliance with FEMA and RBI guidelines is strictly enforced for these transactions.
Validity Period of Prepaid Wallet License and PPIs
- The PPI License granted by RBI is generally valid for five years, subject to periodic compliance audits and regulatory reviews.
- The minimum validity of a PPI instrument (e.g., prepaid card or wallet) is one year from the date of last reload, although issuers may offer longer validity periods.
- Upon card expiration, customers can apply for a replacement to ensure uninterrupted services.
- If customers do not renew expired PPIs, issuers may deduct 10% of the remaining balance monthly until fully exhausted, with prior notification to users.
- Issuers must proactively send expiry reminders, allowing customers to renew or use balances within three months post-expiry to avoid deductions or deactivation.
Conclusion
Prepaid Payment Instruments (PPIs) have become a vital pillar in India’s rapidly expanding digital payment ecosystem. They provide users with a convenient, fast, and secure means to conduct financial transactions, aligning well with the evolving payment preferences of consumers across the country. The clear classification of PPIs into closed, semi-closed, and open systems, along with well-defined regulatory guidelines on issuance, limits, and usage, ensures a structured and transparent framework that promotes trust and safeguards user interests.
Obtaining a PPI License is more than just a regulatory formality—it signifies credibility, compliance, and readiness for banks and companies to actively participate in the prepaid payments landscape. As digital technology continues to evolve, PPIs are poised to offer enhanced functionalities and wider accessibility, thereby driving financial inclusion and empowering users from all strata of society.
Frequently Asked Questions (FAQs) on PPI License
Q1. What is a PPI License and why is it required?
A PPI License is granted by the Reserve Bank of India (RBI) to entities that issue or operate prepaid payment instruments such as mobile wallets, smart cards, or online wallets. It ensures that only regulated and financially stable companies manage digital transactions involving public money, thereby protecting customer interests and maintaining trust in the financial system.
Q2. Who is eligible to apply for a PPI License in India?
Scheduled banks and NBFCs authorized by RBI to offer mobile banking can apply. Additionally, companies registered under the Companies Act, 2013, with PPI activities included in their object clause, and a minimum net worth of Rs.15 crores, are eligible.
Q3. What are the mandatory documents required for a PPI License application?
Applicants must submit documents including: Certificate of Incorporation, No Objection Certificate (NOC) from RBI (if applicable), audited balance sheets, profiles of key management, detailed project report, business plan, funding sources, statutory auditor details, and other operational information as specified by RBI.
Q4. What is the process to obtain a PPI License in India?
The process begins with submitting an application under Regulation 3(2) of the Payment and Settlement Systems Regulations, 2008, along with necessary documents and fees. RBI screens the application, grants an in-principle approval valid for six months, after which the applicant must submit a System Audit Report (SAR). Upon successful review, the final PPI License is issued.
Q5. How long is the PPI License valid?
The PPI License is typically valid for five years, subject to compliance reviews. The RBI may revoke the license earlier if the holder fails to meet required norms. Issued PPIs must have a minimum validity of one year from the last reload, though longer validity periods may be offered.
Q6. Are cross-border transactions allowed under a PPI License?
Cross-border transactions are permitted only for entities authorized under the Foreign Exchange Management Act (FEMA), 1999. Such transactions have a maximum foreign currency limit of Rs. 5,000 to ensure regulatory compliance.
Q7. Can the PPI balance be forfeited after expiry of the wallet or card?
No, balances are not immediately forfeited. If a customer does not renew their wallet or card, issuers can deduct 10% of the outstanding balance monthly until it is fully depleted. Customers are notified prior to expiry and have a three-month period to renew or redeem their balance.
Q8. What is a System Audit Report (SAR) and why is it required?
A System Audit Report is an independent audit assessing the applicant’s technical, security, and operational readiness to run PPI services. It is mandatory post in-principle approval and helps RBI ensure that the payment system is secure and compliant before granting the final license.
