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Prepaid Payment Instruments (PPI)
RBI Authorisation (PPI License)

Planning to enter India's digital payments market? We simplify the complex PPI licensing process with expert guidance on ₹5-15 crore net-worth requirements, PRAVAAH portal submission, SAR completion, and comprehensive compliance support for successful RBI authorisation.

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What are Prepaid Payment Instruments (PPIs)?

Prepaid Payment Instruments (PPIs) are payment tools that enable users to purchase goods and services, conduct financial transactions, and facilitate money transfers using pre-stored value. This stored value represents money paid in advance by the holder through cash, bank transfers, debit cards, or credit cards. PPIs come in many different forms to suit various user needs and preferences. You might encounter them as physical cards - like the smart cards used in metro systems, magnetic stripe cards for shopping, or even simple paper vouchers. On the digital side, they include the mobile wallets we use daily, online accounts for internet shopping, and various payment platforms. There are also hybrid solutions that cleverly combine multiple payment methods in a single app, giving users the flexibility to choose how they want to pay.

Examples of pre-paid Instruments are as under

How PPIs Work

PPIs work like a digital piggy bank - you load money into them ahead of time, and then spend that stored money whenever you need to make a purchase. The best part? You don't need to connect to your bank account every time you want to buy something. Think of it as having cash in your phone or on a card that's ready to use instantly. This makes PPIs incredibly useful for people who might not have traditional bank accounts or prefer not to link their bank details for every transaction. They're helping millions of Indians join the digital economy - from street vendors accepting digital payments to students using campus cards, PPIs are making cashless transactions accessible to everyone, regardless of their banking status.

PPI License & Role of RBI

The Reserve Bank of India (RBI) serves as the central regulatory authority for PPIs in India under the Payment and Settlement Systems Act, 2007, implementing a comprehensive framework that balances innovation promotion with risk mitigation. The RBI's multifaceted approach ensures payment system safety and security, protects consumer interests, fosters competition in the payments sector, and maintains financial stability through Master Directions, regular circulars, mandatory authorisation requirements, and ongoing supervision of licensed entities.

Why and Which Businesses Need PPI Licenses?

Under Section 4 of the Payment and Settlement Systems Act, 2007, no entity (except RBI) can operate a payment system in India without obtaining authorisation from the Reserve Bank of India. This mandate applies to banks and non-bank entities proposing to issue regulated PPIs. Following businesses that need PPI licenses

S.NoBusiness TypeDescription
1.Digital Wallet ProvidersCompanies that create and operate digital wallets where users can store money electronically and make payments to various merchants require PPI licenses to ensure regulatory compliance and customer fund protection.
  • Companies offering mobile wallet services
  • E-commerce platforms with integrated wallets
  • Fintech startups providing digital payment solutions
2.Pre Paid Card IssuersOrganisations that issue physical or virtual prepaid cards accepted across multiple merchant locations must obtain PPI authorisation to operate within India's regulated payment ecosystem.
  • Prepaid card issuers for third-party merchant acceptance
  • Travel card providers
  • Corporate expense card issuers
3.Payment Platform OperatorsBusinesses that facilitate payment transactions between different parties, acting as intermediaries in the payment process, need PPI licenses to operate their payment infrastructure legally.
  • Companies facilitating payments between multiple parties
  • B2B payment solution providers
  • Cross-border remittance service providers
4.Financial Service CompaniesFinancial institutions and related entities offering payment instruments as part of their broader financial services portfolio require PPI authorisation to comply with RBI's payment system regulations.
  • NBFCs offering payment instruments
  • Money transfer operators
  • Digital lending platforms with payment features

Exemption: Closed System PPIs

Businesses issuing instruments exclusively for their own goods/services (like single-brand gift card loyalty points) are exempt from RBI authorisation, provided they don't allow third-party payments or cash withdrawals.

What Triggers PPI License Requirement

Businesses must carefully evaluate their proposed payment instrument's functionality to determine if they need a PPI license. The critical trigger is whether your payment system operates beyond a "closed-loop" structure. If your business plans to issue instruments that allow payments to third-party merchants (merchants other than your own company), fund transfers between users or to bank accounts, or cash withdrawal facilities, you will require RBI authorisation. Additionally, if your system enables cross-merchant acceptance where users can spend stored value at multiple unrelated businesses, or if you're creating a payment platform that processes transactions between different parties, PPI licensing becomes mandatory.

The key distinction lies in scope: closed-system PPIs (like single-brand gift cards usable only at the issuer's outlets) are exempt, while any instrument that facilitates broader payment ecosystem participation falls under RBI regulation.
  • check-box-blue.svg
    Third-party payments
  • check-box-blue.svg
    Fund transfers
  • check-box-blue.svg
    Cash withdrawal
  • check-box-blue.svg
    Multi-merchant acceptance

Businesses should assess whether their proposed payment solution extends beyond their own goods/services ecosystem, involves storing customer funds for third-party transactions, or provides payment infrastructure services to other businesses, as these activities definitively require PPI authorisation under the Payment and Settlement Systems Act, 2007.

Difference Between PPI and UPI-Based Apps: Licensing Framework

UPI-based mobile apps are not Prepaid Payment Instruments (PPI) but rather platforms that facilitate direct bank-to-bank transfers using the Unified Payments Interface system. UPI apps like PhonePe, Google Pay, and Paytm UPI connect directly to your bank account, enabling instant money transfers without preloading funds into a separate wallet.

UPI AppsPPI Apps/Wallets
UPI apps enable instant transactions directly from your bank account, with no stored value or preloading required. Money moves in real time between bank accounts through the UPI rails.
Licensing Requirements - UPI Apps:
  • Do not require PPI licenses from RBI
  • Need authorisation as Third Party Application Providers (TPAPs) from NPCI
  • Subject to different regulatory frameworks under UPI guidelines
PPI Apps/Wallets require preloading money into a digital wallet or prepaid card (like Paytm Wallet, Amazon Pay, MobiKwik). Transactions use stored value in the wallet, not directly from your bank account.
Licensing Requirements - PPI Wallets:
  • Require mandatory PPI license from RBI under the PSS Act, 2007
  • Must comply with PPI Master Directions
  • Subject to net-worth requirements, escrow account maintenance, and ongoing RBI supervision

Recent regulatory changes:

The RBI just made digital payments even more convenient! You can now link your full KYC PPI wallet to UPI apps like Google Pay or PhonePe and use your wallet money for UPI transactions. It's like having your prepaid wallet speak the same language as UPI. This means less switching between apps and more payment flexibility. Whether you want to use your bank account or your prepaid wallet, you can do it all from your favourite UPI app. This significant amendment was introduced via RBI Notification RBI/2024-2025/97 CO.DPSS.POLC.No.S972/02-14-006/2024-25 dated December 27, 2024

Comparison Table Between UPI Apps Vs PPI Wallet

S.No. Feature UPI App (Bank Account Linked)PPI Wallet (e.g., Paytm Wallet)
1.Funds SourceDirect bank accountPreloaded wallet balance
2.RBI PPI License RequiredNoYes
3.Authorisation NeededTPAP from NPCIPPI License from RBI
4.Fund StorageNo stored valueStored value instrument
5.Regulatory FrameworkUPI GuidelinesPPI Master Directions
6.Net-worth RequirementsNot applicable₹5-15 crore for issuers
7.Escrow AccountNot requiredMandatory for PPI issuers
8.InteroperabilityNative UPI ecosystemCan link to UPI (recent change)

Types of PPIs and License Requirements in India

The Reserve Bank of India has evolved its PPI classification system to provide greater clarity on regulatory requirements. Understanding these categories is crucial for businesses to determine their licensing obligations.

Current RBI Classification System

1

Closed System PPIs (No License Required)

Closed System PPIs are exempt from RBI authorisation as they operate within a restricted single-entity ecosystem. These instruments are issued exclusively for purchasing goods and services from that specific entity only, with restrictions prohibiting third-party payments, cash withdrawals, and fund transfers. Examples include single-brand gift cards, store loyalty points, and company meal vouchers redeemable only at the issuer's outlets. No RBI licensing is required since they don't facilitate broader payment network participation.

2

Small PPIs (License Required)

Small PPIs require RBI authorisation and are designed for limited-scope digital payments with minimal KYC requirements. They operate with streamlined KYC, requiring only mobile OTP verification and self-declared name and ID. Financial limits include ₹10,000 monthly loading, ₹1,20,000 annual loading, and ₹10,000 maximum outstanding balance. Usage is restricted to goods and services purchases only - no fund transfers or cash withdrawals are permitted. Two sub-types exist: with cash loading facility and without cash loading (bank account/credit card loading only). Small PPIs must convert to full-KYC PPIs within 24 months.

3

Full-KYC PPIs (License Required)

Full-KYC PPIs require RBI authorisation and offer comprehensive payment functionalities with complete customer verification. They demand full KYC compliance per RBI Master Directions and allow a higher ₹2,00,000 maximum outstanding limit. Users can purchase goods/services, conduct fund transfers, and perform cash withdrawals. Interoperability is mandatory via UPI for wallets and card networks for cards. Recent updates allow linkage with third-party UPI applications like Google Pay and PhonePe.

4

Gift PPIs (License Required)

Gift PPIs are specialised non-reloadable instruments for gifting purposes, requiring RBI authorisation despite limited functionality. They have a ₹10,000 maximum value cap and are intended for one-time use. While cash-out is generally restricted, fund transfers back to the source account are permitted with holder consent.

5

PPIs for Mass Transit Systems - PPI-MTS (License Required)

PPI-MTS, introduced via RBI circular dated February 23, 2024, addresses public transportation payment needs. Designed for metro, buses, railways, tolls, and parking payments, they operate with a ₹3,000 maximum outstanding limit. They can be issued without KYC verification, feature perpetual validity, and are reloadable. However, cash withdrawals, refunds, and fund transfers are prohibited. Only existing RBI-authorized PPI issuers can offer PPI-MTS.

License Requirements Summary

S.No. PPI TypeRBI License RequiredIssuer EligibilityKey Compliance
1.Closed SystemNoAny entityBasic operational compliance
2.Small PPIYesBanks & Non-banksNet worth: ₹5-15 crore, Minimal KYC
3.Full-KYC PPIYesBanks & Non-banksNet worth: ₹5-15 crore, Full KYC, Interoperability
4.Gift PPIYesBanks & Non-banksStandard PPI licensing requirements
5.PPI-MTSYesAuthorised issuers onlySpecialised transit payment compliance

Eligibility Requirements for PPI License in India

The Reserve Bank of India has established stringent eligibility criteria to ensure that only financially sound, technologically capable, and well-governed entities can obtain PPI licenses. These requirements are designed to protect consumer interests and maintain the integrity of India's digital payment ecosystem. Prospective applicants must demonstrate compliance across multiple dimensions, including corporate structure, financial strength, management quality, and operational readiness.

Corporate Legal Structure

A company incorporated in India under the Companies Act with MOA explicitly stating PPI issuance as a business objective. Complete statutory compliance is required, including PAN, GST registration, AOA, and applicable licenses.,

Net-Worth Requirements

Minimum ₹5 crore net worth at application time, increasing to ₹15 crore by the third financial year. Net worth is calculated as paid-up capital plus reserves minus accumulated losses and deferred expenditure.

Fit and Proper Criteria

All directors must meet RBI's 'fit and proper' standards with clean track records, no defaults, pending cases, or adverse financial history. Directors must also submit a prescribed declaration and undertaking.",

Technology & Security Standards

Robust IT infrastructure with a cybersecurity framework is mandatory. A System Audit Report (SAR) by a CERT-IN empanelled auditor is required. Two-factor authentication, fraud prevention, and disaster recovery plans must be implemented.

Regulatory Compliance & Clearances

No Objection Certificate (NOC) from existing regulator if applicable. Compliance with FDI policy guidelines for foreign investment. Adherence to Anti-Money Laundering and KYC regulations is essential.

Operational & Business Plan

A detailed business plan with payment system architecture is required. Must establish customer grievance redressal mechanism compliance framework and demonstrate adequate human resources and infrastructure setup.

Step-by-Step Process to Obtain PPI License in India

Obtaining a PPI license in India involves a detailed regulatory process that requires careful planning and compliance with RBI guidelines. Setindiabiz acts as your regulatory partner, offering comprehensive support throughout the licensing process. Our expert team navigates RBI requirements, ensures correct documentation, & filing. We simplify the process from eligibility assessment to final authorisation while ensuring regulatory adherence.

1

Step-1: Pre-Application Preparation 📋

First things first - make sure your company is properly set up in India and that your MOA clearly mentions PPI issuance as one of your main business activities. You'll need to have at least ₹5 crore in net-worth (get your CA to certify this) and start putting together all your paperwork. Don't forget to do a quick tech assessment and collect all those compliance documents you'll need. Plan for about 2-4 months for this prep work - it's really the backbone of everything that follows.

2

Step-2: Application Submission via PRAVAAH Portal 💻

Now comes the actual application! You'll need to fill out Form A on RBI's PRAVAAH Portal (<Link href="https://pravaah.rbi.org.in">https://pravaah.rbi.org.in</Link>) - it's the only way they accept applications now. Pay the ₹10,000 fee (no getting this back if things don't work out), and upload everything, including those director declarations. The good news is you can track your application in real-time and chat directly with RBI through the portal. Once you have all your documents sorted, the actual uploading usually takes a week or two.

3

Step-3: RBI Screening & Due Diligence 🔍

Here's where RBI does their homework on you. They'll check if you meet their requirements, go through your documents with a fine-tooth comb, and make sure your directors and promoters are the right fit. If they ask you questions (and they probably will), answer quickly and thoroughly - they won't hesitate to send back incomplete applications without refunding your fee. This whole review process can take anywhere from 2-4 months, depending on how well you've prepared and how complex their questions are.

4

Step-4: In-Principle Approval ✅

RBI grants conditional approval valid for six months (extendable by six months) upon meeting eligibility criteria. This milestone approval comes with specific conditions that must be fulfilled within the validity period. RBI reserves the right to withdraw approval if adverse information emerges.

5

Step-5: System Audit Report (SAR) Submission 🔐

Engage CERT-IN empanelled auditor for comprehensive system audit covering IT infrastructure, security controls, and operational processes. Submit satisfactory SAR with an updated CA net-worth certificate within the in-principle approval period. This phase requires 3-6 months for completion.

6

Step-6: Final Certificate of Authorization (CoA) 🏆

Upon satisfactory SAR review and final due diligence, RBI grants a perpetual Certificate of Authorization enabling legal PPI operations. The CoA remains subject to continuous regulatory compliance and takes 1-2 months post-SAR submission.

7

Step-7: Business Commencement 🚀

Commence PPI operations within six months of the CoA grant (extendable by six months upon request). Failure to begin operations results in automatic license lapse. Begin ongoing compliance and reporting obligations to RBI.

Total Timeline: 6-12 months ⏰ Timeline varies based on application quality, system complexity, and responsiveness to RBI queries. Rejected applications are subject to a one-year cooling-off period.

Document Requirements for PPI License Application

Obtaining a PPI license from the Reserve Bank of India (RBI) requires comprehensive documentation that demonstrates your company's legal standing, financial strength, management competency, and operational readiness. The RBI conducts thorough due diligence to ensure only qualified entities enter the regulated payments ecosystem, making proper documentation crucial for application success.

Regulatory & Compliance Documents ✅

  • 1
    Certificate of Incorporation
  • 2
    Registered office address proof
  • 3
    Memorandum & Articles of Association
  • 4
    Directors and Shareholders list
  • 5
    Board Resolution for application
  • 6
    Audited Balance Sheets (last 1-3 years)
  • 7
    CA Net-worth Certificate (₹5 crore minimum)
  • 8
    Promoters' and directors' profiles
  • 9
    PAN cards and address proof
  • 10
    Business Plan and Project Report
  • 11
    Payment system architecture

Post In-Principle Approval Documents 🔐

  • 1
    System Audit Report (SAR) by CERT-IN empanelled auditor
  • 2
    Updated net-worth certificate
  • 3
    Compliance certificates for any additional requirements
documents required

Ongoing Compliance Requirements for PPI License Holders

Obtaining a PPI license is just the beginning of your regulatory journey. Licensed PPI issuers must continuously comply with evolving RBI regulations to ensure their Certificate of Authorization remains valid. These ongoing obligations cover financial, operational, technical, and reporting requirements that safeguard consumer interests and maintain system integrity.

1

Net-Worth Maintenance

Maintain a minimum ₹15 crore net worth by the third financial year and thereafter. Submit an annual CA certificate confirming compliance with prescribed calculation methodology.

2

Escrow Account Management

Maintain outstanding PPI balances in a dedicated escrow account with a scheduled commercial bank. Ensure proper fund safeguarding per Section 23A of the PSS Act requirements.

3

Operational & Technical Compliance

CERT-IN auditors must conduct annual audits covering IT, cybersecurity, and operations, with reports demonstrating technological robustness. Payment data must be stored in India with strong security and compliance measures. Full-KYC PPIs must ensure interoperability through UPI (wallets) or authorised card networks (cards) for ecosystem integration.

4

Customer Protection

Strict KYC/AML procedures, including transaction monitoring and reporting to FIU-India, are mandatory. A grievance redressal mechanism with accessible channels and customer service adhering to RBI timelines is also required.

5

Regulatory Reporting

Submit quarterly PPI Statistics and Customer Grievance Reports to RBI. Provide accurate operational data. Inform RBI of major changes and obtain prior approvals when required.

Frequently Asked Questions