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Know Mobile Wallet

A mobile wallet is a virtual money wallet, where you open an account with a mobile wallet service provider and preload a certain amount of money. It is basically an application stored in a smart phone. You can pay for movie tickets, utility bills like water and electricity and even transfer money using the mobile wallet.

Mobile wallets are of 4 types

  • Closed wallet
  • Semi-Open wallet
  • Semi-Closed wallet
  • Open wallet

Closed wallet: A closed wallet is issued by a Company and can be used to buy goods and services, only from that Company. There are no third party transactions on a closed wallet.

Semi-Open wallet: Semi-open wallet allows you to transact (make a payment), only with merchants which have a contract with that Company.

Semi-Closed wallet: Semi-closed wallets allow you to buy goods and services, only at listed merchants and also perform financial services at these listed locations.

Open wallet: You can buy goods and services using an open wallet. This also includes financial services. You can also withdraw cash from an ATM or a business correspondent (BC), using an open wallet. You can transfer/remit money using this wallet. Only a bank can issue you an open wallet.

How does a mobile wallet work?

You have to install the mobile wallet app on your smart phone. You will have to open an account with the mobile wallet provider. Some mobile wallet providers especially open wallets require you to complete KYC (Know Your Customer), by submitting relevant documents. You require an identity proof and an address proof to complete your KYC.

You then have to transfer money to this wallet to make your payments. You can make payments depending on the type of wallet. If you have a closed wallet then you can make payments, only to particular merchants. If you have a semi-closed wallet then you can make a payment only with those merchants, who have agreed to accept payments from these wallets. You can transfer/remit money using an open wallet issued by a bank.

What happens to the money stored in mobile wallet?

Treatment of money stored in these wallets depends on the type of wallet.

Closed wallet:
You transfer money to your closed wallet. This money is a liability for the Company. The Company does not earn any interest on this money stored in the closed wallet. It is only when you make a purchase that the Company earns a profit. Some Companies get a small amount of interest on the money stored in the closed wallet. There would be cases in which the Company has to refund the money stored in the closed wallet. This forces the Company to store money until a purchase is made. If money is refunded back to your closed wallet, it earns a small amount of interest provided it crosses a certain minimum limit. You do not get any interest on the money stored in the open wallet.

Semi-closed wallet:
You send money from your bank account to the payment Company using a Semi-closed wallet. The payment Company maintains the money in an escrow account with the bank. The Payment Company earns about 4-6% interest on this money. You do not get any interest on the money stored in the semi-closed wallet.

Open wallet: The money in the open wallet is managed by banks. The money earns interest which is shared between the bank and the mobile service provider. The future of banking in India is the mobile wallet. The market for mobile banking in India, could grow to INR 1200 Crores in the next 5 years. With a number of youth in our country using smart phones, mobile wallets are here to stay.

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