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The different types of wallets

Written by  Siddarth Tuesday, 30 May 2017 11:25

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:

Restrictive usage

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.

No redemption or withdrawal
You cannot transfer the money to your bank account or use any means to withdraw it from an ATM or a bank branch.
These wallet systems do not allow you to add money. You cannot use your credit card or bank account to top-up the wallet.
The money that is available in such a wallet will have to be used. Many merchants use this tactic to lure customers into "quick refunds" and then force them to use the money on their platform with warnings about "Expiry of the balance" . So the next time a merchant says "Instant refund to your wallet", think twice :)
Oh btw, a PPI license issued by RBI is not required to run a closed loop wallet system.


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:

  1. Add money into the wallet.
  2. Withdraw money from the wallet into a bank account.
  3. 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.

No withdrawals
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
These wallets basically allow you to do everything that a bank account does, except offer interest on the money available in the wallet. You can use them at any outlet , perform purchases including financial services such as fund transfers and withdraw cash at ATMs as well.
Closed loop wallet and Semi closed loop wallets can be issued by entities that hold a PPI license. Only banks can issue an Open loop wallet.
Go ahead and tell your friend that s/he just used a closed loop wallet to take he/r "instant refund" and also let he/r know that s/he used a semi closed loop wallet to buy movie tickets.
Read 4060 times Last modified on Tuesday, 30 May 2017 12:20