Closed loop canteen wallet: why it needs no RBI licence, and the conditions that keep it so

Most large plants and campuses have tried at least one way of taking money for canteen meals: cash at the counter, coupons, salary deduction, or a prepaid wallet topped up by UPI. The wallet is the one that makes finance teams nervous, because "wallet" sounds like something the RBI regulates. In most company canteens it does not need a licence at all. A closed loop canteen wallet, where the company is the only seller and the money cannot leave the canteen, falls outside RBI authorisation. The details of how you set it up decide whether it stays there.

What the RBI PPI master directions say

RBI regulates prepaid payment instruments (PPIs) under the Payment and Settlement Systems Act through the RBI PPI master directions of 27 August 2021. Paragraph 2.1 describes the closed system:

• issued by an entity to facilitate the purchase of goods and services from that entity only;
• no cash withdrawal;
• cannot be used for payments or settlement for third-party services;
• and, because of all this, not classified as a payment system requiring approval or authorisation by RBI.

A gift card that works only in one shop is the usual example. A closed system prepaid instrument for staff meals, issued by the employer and spent only on the employer's canteen, fits the same description.

The 2026 draft keeps the idea

In April 2026 RBI released draft directions to replace the PPI framework. Commentators read them as dropping the "closed system" label but keeping an exemption for a wallet issued "by an entity, other than a marketplace, only for the purpose of facilitating purchase of goods or services from the entity itself". A marketplace is a platform between buyers and sellers. A company selling its own canteen meals to its own staff is not one.

The draft was open for comments until 22 May 2026 and was not final when we checked. Re-check the wording once the final directions are out.

Four conditions for a closed loop canteen wallet

In practice a company canteen wallet stays outside RBI authorisation while all four of these hold:

1. The company is the seller. The employee buys the meal from the company. The caterer supplies the company and bills the company for meals served; it does not sell to employees on its own account.
2. No cash-out. Balances are never paid out in cash or to a bank account the money did not come from.
3. No third-party use. The wallet cannot be spent at the stationery shop, the pharmacy counter or a vendor's stall that is not the company's own.
4. The money goes to the company. Top-ups are collected through the company's own payment gateway merchant account. A software provider or the caterer never holds the money.

In this set-up the payment gateway is the payment aggregator, and the company is simply its merchant. That is also why the payment aggregator directions are not a problem: the company is collecting money for its own sales.

Canteen wallet refund: the exit rule

The awkward moment is when someone leaves with ₹740 in the wallet. Paying it out in cash, or adding it to the full and final settlement as a credit to the salary account, looks harmless but is exactly the cash-out the closed system forbids.

The clean canteen wallet refund is to the source: back to the UPI account or card the top-ups came from. Most payment gateways let you refund against the original payment. Set a policy that unused balances are refunded to source on exit, and that the refund is processed within the F&F timeline so it does not hold anything up.

A worked example

A tyre plant in Hosur has 1,200 workers and a contracted caterer. The company has set the worker's price for lunch at ₹30. The caterer bills the company ₹68 per meal served, and the company bears the ₹38 difference.

• Workers top up the wallet by UPI, ₹100 to ₹2,000 at a time.
• At the counter, a card tap or QR scan takes ₹30 from the wallet.
• At month end, the canteen system counts meals served and the caterer bills the company for them.
• The ₹30 per meal belongs to the company; the caterer never sees the wallet money.

This is a closed loop: one seller (the company), no cash-out, no other use. Where the OSH Code requires a canteen, that welfare duty sits with the employer anyway, so the arrangement also mirrors the legal reality.

The subsidy the company bears raises a tax question for the employee. Free or subsidised meals during working hours have their own rules under the 2025 Act, which we explained in the meal perquisite post.

Food court wallet: where the line is crossed

Now change one fact. The Hosur plant replaces its caterer with a food court: four independent vendors, each selling on its own account, each with its own menu and prices, all accepting the same wallet.

That food court wallet is now used to pay third parties. It is no longer closed. A wallet usable at a group of unrelated merchants is a semi-closed PPI, and only an RBI-authorised issuer can run one. The company should not issue it.

The workable options are:

• go back to the model where the company buys from the vendors and sells to employees;
• let each vendor take UPI or cards directly, without a wallet;
• or use a wallet run by an RBI-authorised PPI issuer.

If you are not sure which side of the line your arrangement is on, this is a question for your lawyer, not your IT team.

Data and records

A wallet creates a record of what each employee eats and when. Keep it to what the canteen needs, restrict who can see it, and set a retention period. The same principles apply as for other HR data under the DPDP Act, covered in the DPDP Act post for HR. For multi-plant groups, the canteen is one of several welfare facilities that HR has to run consistently; see the HRMS guide for manufacturing.

A setup checklist

1. Write down who sells the meals: the company, not the caterer.
2. Collect top-ups into the company's own merchant account.
3. Switch off any cash-out, and refund unused balances to source only.
4. Keep the wallet to canteen meals and pre-orders.
5. Set top-up and balance limits as company policy.
6. If you ever move to independent vendors selling on their own account, switch the wallet off first.

In Vatsin Canteen, top-ups go through the company's own payment gateway account, refunds go only to the original card or UPI, and if the company sets the canteen as one where vendors sell on their own account, online top-up switches off. Confirm your own arrangement with your CA or legal adviser.