A digital payment wallet is also a software-oriented solution that provides protection for the user or customer payment data and passwords for various online payment methods and websites. Using an e-wallet or a digital wallet, users may shop with communications technology in the near-field quickly and conveniently. Prepaid Payment Instruments (PPIs) are payment instruments that facilitate the purchase of goods and services, such as the transfer of funds, financial services, and remittances, against the value stored within or on the instrument, according to RBI guidelines provided underneath the Payment and Settlement Act of 2005. A Prepaid Wallet license is a prepaid payment instrument that allows for the purchase of products and services, as well as money transfers, using the value held on the device. The value held on such instruments is the price paid for them by their owners. Customers can pay with a debit card or a credit card. In combination with mobile payment systems, digital wallets are employed that allow customers or users to pay for mobile phones for purchases. Digital vouchers and information can also be stored via an e-wallet. Three separate digital wallet categories include open, closed, and semi-closed wallets.
We will enlighten you about the importance of prepaid payment instruments and the difference between Closed and Semi-closed wallets and their functions.
Basic Functions of digital money
- E-wallet refers to the financial tool enabling the end-users of the company to store funds, receive payments and keep an eye on the history of payment;
- These financial tools, such as Google pay, PhonePe, or PayTm, can be registered in the bank’s mobile application.
Types of Digital Wallets and E-wallets in India
Take a look at three different types of E-wallets:
- Open Wallet: Banks or bank-related institutes issue open wallets. Customers who have such wallets may, in addition to withdrawing money from banks and TMS & Transfer of Funds, access the semi-closed wallet to make transactions. Examples are Master Card, Visa Card, and so on.
- Closed Wallet: A customers’ wallet may be developed by a company that sells its products and/or services. Clients using a closed wallet may access the saved money to transact with just the wallet issuer. Money is collected by a wallet from returns, cancellations or refunds. For instance, a closed wallet is Amazon Pay.
- Semi-closed Wallet: It allows clients to transact at listed sites and traders. While semi-closed carriages are covered, these carriers can be used to buy both offline and online. Nevertheless, traders must sign mobile wallet payment agreements or contracts with issuers. For example, Paytm, Freecharge and Mobikwik are semi-closed carriers.
Here are some benefits of wallets in India open, closed, and semi-closed:
- Used for buying items or things with swiping cards;
- used with mobile banking and Internet banking.
- It may be used in cash withdrawal.
- Rewards like cashback and refunds;
- Purchasing products and services.
- Used for purchasing items from affiliates;
- transfer of funds between users of wallets.
Major Differences between Closed Wallet and Semi-closed Wallet
Some crucial distinctions between closed and semi-closed wallets are as follows:
- Digital shopping may be made via semi-closed wallets, and cash can be sent to the receiver using the same wallet. Such a wallet also enables clients to transfer the wallet balance amount to their bank account;
- A closed wallet is a platform wallet service given to its customers or users by the service provider. The main purpose of this is to acquire a devoted user base from internet firms. It makes rapid payments and cashback possible for customers;
- Semi-closed wallets are broadly used in India owing to their incomparable resilience and extensive applicability. Semi-closed wallets like PayTm, Oxygen, Citrus, etc., are the best examples of this wallet. The RBI consent is compulsory for commencing a semi-closed wallet service in India;
- A closed wallet has constraints and offers a restricted pool of customers. The Amazon wallet or Myntra Wallet is a fantastic illustration of this.
- The notion of digital wallets is not new to Indian customers. It should be remembered that this wallet does not bring any benefits to customers such as cash withdrawals or redemptions.
- These services enter the Indian market around ten years ago, and since then, a large consumer pool has been safeguarded. E-wallet has become a viable alternative to payment banks and is utilised in the e-commerce sector insistently;
- An open, closed, and semi-closed wallet can be used to deal online or offline with, the issuer’s legally contributory contract with him to receive payment instruments, purchasing items online, receipt of financial services, payment of fees, etc. through or to the merchant;
- Because such wallets are managed by agencies other than banks, they must transmit this money to an associated bank’s escrow account. In line with the contract conditions between the payment firm and the bank, the interest applicable to such deposits varies.
The payment tool is categorised into 4 categories, and the following is available below:
- Open Payment Instrument;
- Semi-open Payment Instrument;
- Closed Payment Instrument;
- Semi-closed Payment Instrument.
Payment instruments in the closed payment process discuss payment instruments that are essentially exclusively for use by companies in their formation. These devices do not provide reimbursement or cash withdrawal services. Ola Money Credit is in this category. Freecharge credit.
These instruments can be reimbursed at recognised trading places that accept the payment instrument, in particular with the issuer. In addition, these facilities do not allow the owner to withdraw/rescue cash. The comprehensive comparison of closed and semi-closed wallets is as follows:
- The money and cashback can be used to purchase only from the issuer’s seller, who pays for the issuer’s seller.
- The authorization of the Indian reserve bank or PPI is not mandatorily granted to clients wanting to influence locked bags. The license is a pre-paid payment instrument.
- For this wallet, interoperability is not valid.
- The transaction is completed exclusively between the issuer and the wallet owner due to individual merchant spending.
- For the consumers of this wallet, cash withdrawal is not available.
- Not obviously forbidden. Allowance is not obvious and depends on the type of transaction.
- This wallet refers to a digital wallet that allows users to buy items and services from the firm. For example, Amazon, Clear travel.
- This wallet may be used to pay for the goods and services purchased from connected traders. To purchase goods and services from the issuer for customer transfer.
- Without the Payment Instruments License, banks could function. But with non-bank firms, the same is not true.
- Only full KYC semi-closed wallets are permitted with interoperability.
- Only contractual merchants are allowed.
- This wallet cannot allow cash withdrawals.
- The whole KYC wallet semi-closed for minimal KYC digital wallet allowable should not be semi-closed.
- This wallet is suitable for the purchase of items and services since it is a payment instrument to recognise the payment instrument at recognised merchant locations that contract with the issuer in particular.
Wallet closed and half semi-closed serves a variety of applications. When transactions are made exclusively among the wallet holders and the issuer under a closed wallet, the semi-closed wallet enables its users to deal with money both through the operator and linked merchants.
Closed wallets enable the user to buy certain products and services from a single supplier. Cash or restitution facilities are not provided. Half closed wallets which accept payment instruments with an issuer’s specific agreement without allowing the holder to withdraw money or redeem products and services from the network of recognized financial services trading establishments.