Each and everyone seems to have a physical wallet and quite a few of us have a digital wallet but do we know that there are three kinds of wallets (pre paid instruments) available, as defined by the regulator. Let us spend some bits and bytes understanding what are they and why the difference.
Closed Loop Wallet
These are wallets that are issued by businesses for use at their outlets-online or offline. Think of these as your reward points accumulated at various places such as GoIbibo, Promotional credits in Makemytrip and also various other bonuses offered by various companies. The disadvantages of such an instrument are:
These can be used only at the merchant of issuance. For example, if a business or merchant has issued it, the balance can be issued only at that merchant.
You cannot transfer the money to your bank account or use any means to withdraw it from an ATM or a bank branch.
Semi Closed loop Wallet
This is the most commonly available form of wallet in the country. All the wallet players offer a "semi closed loop wallet" to their users. These wallets allow users to:
- Add money into the wallet.
- Withdraw money from the wallet into a bank account.
- Purchase goods and services from various merchants who accept payments through the wallet.
In addition to the above, companies that offer such wallet services must have a PPI license from RBI. The license criteria is available at RBI's website and it changes from time to time.
Cannot use an atm or any other mechanism to withdraw cash.
KYC Limits Applicable
Are subject to KYC limits above 10,000. The same is being re-looked at RBI in its draft circular (We spend the last but one blog detailing the same).
Open loop wallets