The ‘Invisible’ Wallet

With the emergence of e-commerce and online purchases, the form required for the payment system also required to change, forcing it to go digital. Thus we migrated from cash payments which required us to carry our leather wallet loaded with cash at all times that made it theft prone to plastic card payments such as debit or credit card based system which avoided the use of carrying liquid cash and gave us the freedom to withdraw money or make payments or transfers or remittances from all locations across the globe where the card could be machine-read and now to contactless payments made over digital channels, either from dematerialised cards held on digital wallets or in the cloud, or from new digital payment mechanisms. Since the scenario is still evolving a wide variety of names are used inter-changingly for such transactions such as e-money, digital money, micro-payments etc. The terminology as well as the technology for operation of the E-wallet is still evolving.

What are e-Wallets?

‘Wallet’ in the conventional sense of the term, refers to a purse or folding case for safely holding money or personal information such as identity card. Digital or Electronic Wallet (e-wallet) refers to an electronic, internet based payment system which stores financial value as well as personal identity related information. Such electronic payment systems enable a customer to pay online for the goods and services, including transferring funds to others, by using an integrated hardware and software system. Hardware can be a mobile or computer. Communication between the buyer and the seller may happen over the internet or blue tooth or on mobile network. Thus, e-wallet is nothing but an online money account which does not require the use of a physical card for undertaking transactions or remittances. Unlike savings bank accounts, they, at present, do not offer any interest for keeping money in it, but rewards the holders through cash-backs for making purchases through it. Unlike credit cards, e-wallets are pre-loaded money. Hence, it resembles more to a debit card.

Operational Mechanism

Under mobile or electronic wallet, the individual pre-loads cash in the e-wallet and uses it to make payments or transfers. Loading of money is done either electronically using a computer or mobile by debiting from a credit card or bank account or physically by handing over cash at a local merchant (point of sale [POS]) or at the ATM counters. What is required is an internet connection and a mobile or a computer. With the technology in place, mobile based operations through e-wallets have become a mode for financial inclusion.

There are charges for use of e-wallet, which include registration fees and cash loading charges (above a limit) towards payment companies and service providers. These charges are at times higher than those for internet banking. However, the main advantage with the e-wallet is that while shopping online, the customer stands to benefit from the concessions and offers from the payment companies in the form of cash-backs etc.

Types of e-wallets permitted in India

As per the Reserve Bank of India, there are three kinds of e-wallets in India: closed, semi-closed and open.

Closed e-wallets: These are wallets issued by an entity for facilitating the purchase of goods and services from it. These instruments do not permit cash withdrawal or redemption. As these instruments do not facilitate payments and settlement for third party services, issue and operation of such wallets are not classified as payment systems. Hence, RBI approval is not required for issuing them. Eg. Cab services such as Ola/Uber, e-commerce and mobile companies create e-wallets for making payments towards purchase of products from them for usage of their services. They provide cash backs for payments made through this channel. This is one way of ensuring loyalty of their customers.

Semi-Closed e-wallets: These are wallets which can be used for purchase of goods and services, including financial services at a group of clearly identified merchant locations or establishments which have a specific contract with the issuer to accept them. These wallets do not permit cash withdrawal or redemption by the holder. Wallets for amounts up-to Rs 10,000 can be created under this category by accepting minimum details of the customer. Eg. AirTel Money, which is used for making payments for a range of services like money transfer from Airtel Money to another bank account or any other Airtel Money Wallet or paying select utility bills.

Open e-wallets: These are wallets which can be used for purchase of goods and services, including financial services like funds transfer at any card accepting merchant locations [point of sale (POS) terminals] and also permit cash withdrawal at ATMs. However, cash withdrawal at POS is permitted only up-to a limit of Rs 1000 per day subject to the same conditions as applicable hitherto to debit cards (for cash withdrawal at POS). Eg. M-Pesa is an open wallet run by Vodafone in partnership with ICICI Bank. Axis Bank’s e-Wallet Card’, can used for making payments on sites that accept Visa cards, with a minimum limit of Rs 10, and a maximum limit of Rs 50,000, and a validity of 48 hours.

As I conclude we can see that use of e-wallets helps in moving away from a cash based economy. In the process, all the transactions get accounted in the economy, which has the effect of reducing the size of the parallel economy.