NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, December 9, 2014

Electronic and in-app wallets have emerged as another payment option. Many companies, especially those in e-commerce and telecom services, offer wallets where consumers can preload money and use to pay for services. Here’s a look at the treatment of money stored in various kinds of wallets.

According to the Reserve Bank of India (RBI), there are three kinds of wallets: closed, semi-closed and open.

A closed wallet is issued by a company to a consumer for buying goods and services exclusively from that company. These instruments do not permit cash withdrawal or redemption. Companies such as Flipkart.com, Jabong.com and Makemytrip.com offer closed wallets. Mostly these function as an account where money gets credited in case of a refund due to cancellation or return of a product or service.

In the payments space, companies such as Oxigen Services India Pvt. Ltd, Citrus Payment Solutions Pvt. Ltd and Paytm offer semi-closed wallets. According to RBI, a semi-closed wallet can be used to buy goods and services, including financial services, at clearly identified merchant locations or establishments, which have a specific contract with the issuer to accept the payment instruments. Semi-closed wallets also do not permit cash withdrawal or redemption by the holder.