Mobile Wallets growing popularity post demonetisation:
This post has been written by Sanjana Buch, a lawyer based out of Mumbai
India has been a beneficiary to several revolutions ever since the twentieth century leading to the emergence of its economy from an underdeveloped one to a developing status. The country has in the last 5 years seen a paradigm shift in its economy being exposed to several campaigns to promote manufacturing within the territory, promoting the growth and multiplication of start-ups and the rise of a country moving on the pace of becoming a digital economy.
A recent government initiative aimed at breaking the grip of corruption and black money over the economic activities of the citizens has brought together the country in fighting against this menace and the resultant impact upon the ideals of justice, equality and liberty guaranteed to every citizens under the Constitution of India. In furtherance of this venture, the Central Government has recently announced the discontinuation of currency notes amounting to Rs. 500 and Rs. 1000 as legal tender.
The discontinuation of the currency of these denominations with immediate effect has brought into accord severe discrepancies in the cash flow especially for day to day liquidity requirements. In light of the grievances faced by the masses, there is currently a rise in the usage of digital cash or e-wallets through the concept of mobile or internet based applications which have been opted by people all over the country to meet their day to day spending necessities.
Concept of Mobile wallets:
Mobile wallets are in the nature of prepaid accounts wherein money stored by users are utilised for conducting financial transactions on a need basis. They literally act as a virtual wallet which can be used for the purpose of making instant payments whether virtual or over the counter at physical shopping stores.
In India, there are currently several mobile applications such as PayTM, Mobikwick etc. that are popularly used by people to meet their daily spending requirements such as grocery shopping, travel bookings, shopping through e-commerce websites and so on.
A frequent rise in the usage of these applications along with their perceived utility in contributing to a cashless and digitised society brings us to examine their validity from the legal and regulatory perspective.
Governing Law:
First and foremost, mobile wallets are very much a legally sanctioned mode of conducting financial transactions in India. The financial transactions stipulated through the use of mobile wallets qualify under the concept of a ‘payment system’ which in turn, is governed through the Payment and Settlement Systems Act, 2007 (“PSS Act”). The PSS Act designates the Reserve Bank of India (“RBI”) for the regulation and supervision of all payment systems in the country. The Act in turn, calls upon all persons who seek to commence a payment system to do so only upon obtaining express permission to do so from the RBI.
In furtherance of this regulatory power, the RBI has issued guidelines for the issue of pre-paid instruments by payment system operators registered under the PSS Act. According to the Master Circular on ‘Policy Guidelines on Issuance and Operation of Pre-Paid Payment Instruments in India’ (“Guidelines”), pre-paid instruments are, “payment instruments that facilitate purchase of goods and services, including funds transfer, against the value stored on such instruments.” The Guidelines prescribe the following conditions to be complied with by issuers of pre-paid instruments:
- Eligibility
The Guidelines permit banks as well as certain non-banking financial companies to issue pre-paid instruments subject to compliance with the eligibility criteria viz. fulfilment of the capital requirement and compliance of Know-Your-Customer and Anti-Terrorism guidelines issued by the RBI.
A company applying for authorisation to issue PPIs must have a minimum paid up share capital amounting to Rs. 500 crores along with a minimum net worth of Rs. 100 crores.
It is pertinent to note that the Guidelines permit only Indian companies to apply for issue of PPIs.
- Types of PPIs
The Guidelines provide a comprehensive definition to the concept of PPIs and also delve into the nature of PPIs that can be issued by authorised issuers in the country. As per the Guidelines, PPIs may be of three kinds viz. closed system such as banks and their own payment gateways, semi-closed system wherein payments are accepted by issuers through identified merchant locations and establishments and open system that permit payment at identified locations along with redemption of cash.
- Maximum Permitted Value of Pre-paid Instruments
The Guidelines cap the maximum value of PPIs that can be issued by authorised issuers at Rs. 50,000/-
- Validity of PPIs
PPIs issued by authorised persons under these Guidelines shall be valid for a period of six months from the date of their issue to the holder.
- Redemption of PPIs
The Guidelines permit the holders of PPIs to redeem the balance outstanding on such an instrument on ground of circumstances such as winding up or discontinuation of the scheme directed by RBI.
- Other compliances and disclosures
The Guidelines mandate issuers of PPIs to have in place safeguards for data security and systems for the detection and prevention of fraudulent transactions. Furthermore, all issuers are also required to disclose information pertaining to the instruments issued, its expiry date, details of the grievance mechanism procedure etc. to the holders of PPIs.
Procedure:
As explained earlier, any person desiring to issue PPIs in India must apply for authorisation under the PSS Act the procedure thereof outlined in the Payment and Settlement Systems Regulations, 2008.
In order to obtain authorisation to issue PPIs, an application is required to be made by the person desirous of operating a payment system to the Chief General Manager, Department of Payment and Settlement Systems, RBI along with the prescribed amount of fees. Pursuant to the furnishing of the application, the RBI shall accordingly issue an authorisation certificate granting the permission to operate a payment system.
To conclude, digital cash is a growing reality in light of the current financial upheavals in our country. The RBI has thus, rightly put in place a defined mechanism through which digital wallet providers may commence their operations in India. However, the success of mobile wallets over physical exchange of currency shall be a challenge in light of the diversity in population spread over the land.
Picture Courtesy: Pixabay
