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Pankaj Tyagi
| Updated: 06 Aug, 2021 | Category: Prepaid Wallet License

Close and Semi-closed Wallet: Know the Key Differences

Close and Semi-closed Wallet: Know the Key Differences
Reading Time: 4 minutes

A digital wallet, broadly known as an e-wallet is a software-oriented system that securely spares consumer’s payment details and passwords for various payment methods and websites. Digital wallets have mitigated the requirement of carrying physical wallets by storing payment detail promptly and securely. Besides, digital wallets are a boon to industries that amass consumer data. The digital wallet falls under three vital categories i.e. closed, semi-closed, and open. Technically, to facilitate such services to end-users one has to obtain Prepaid wallet License from RBI. In this write-up, we will look into key differences between a close and semi-closed wallet

Key points to ponder

  • Digital Wallet refers to a financial tool that enables end-users to store funds, make or receive payment, & keep the tap on the payment histories
  • These tools cum software may be incorporated in the bank’s mobile application oras a payment platform like Pay TM or Alipay.

Types of Digital Wallets

Following are the different versions of Digital Wallets

Types of Digital Wallets

1. Closed Wallet

A company selling items or services can create a close wallet for end-users. Users of a close wallet can use the spared funds to make online transactions with the issuer of the wallet. The money from returns, cancellations, or refunds finds its way to a secured server, which is accessible on the wallet as well. Amazon pay is the best possible example of a closed wallet.

2. Semi-closed Wallet

A semi-closed wallet enables end-users to make transactions at listed merchants & locations. Although these wallets lack widespread applicability, both online & offline buying can be done via them. But, merchants need to sign contracts or agreements with the issuers for accepting payments from the mobile wallets.

3. Open Wallet

Banks or institutions working in partnership with banks issues open wallet.

Users having open wallets can utilize them for all transactions permitted with a semi-closed wallet in addition to the transfer of funds and withdrawal of funds from ATMs and bank

Read our article:Payment Bank License – Things you need to Know

Difference between Closed and Semi-Closed Wallet

  • The concept of E-wallets is not new for Indian consumers. E-wallet services find its way into the Indian market about a decade back and since then it has been secured a massive pool of consumer. Digital wallet is aggressively used in the e-commerce industry and has become a viable alternative to payment banks.
  • A close wallet is more of platform-specific wallet services facilitated by the service providers to its customers. It is mainly used by web-based companies to garner a loyal customer base. It allows customers to make prompt payments and earn available cash backs.
  • In semi-closed wallets, one can do online shopping and send money to another recipient in the same wallet network. Such a wallet also enables users to transfer a prescribed amount of wallet balance to their legit bank account.
  • Semi-closed wallet has a widespread reach in the Indian market. These wallets have transformed the way people make payments against online services. Semi-wallets are prompt and secure in comparison to other counterparts. Moreover, such a wallet facilitates swift transactions and seamless refunds. Widespread adoption is another vital factor that contributes to the massive growth of semi-wallet in India.
  • A closed wallet has limited applicability and it caters to a limited pool of customers. Myntra[1] wallet or Amazon Wallet is a common example of a closed wallet. It is important to note down that a closed wallet doesn’t offer benefits like cash withdrawal or redemption to the customers
  • Semi-close wallets are extensively used in India owing to their matchless flexibility and widespread applicability. Wallet services such as Citrus, Paytm, Free charge, Oxygen, etc are the best example of semi-closed wallets. A Reserve Bank approval is mandatory for startinga semi-closed wallet service in India.
  • These wallets can be utilized to transact online & offline which includes availing online services, buying goods online, availing financial services, paying fees, premiums, etc. via/to the merchant which have a legal contract with the issuer to accept payment instruments
  • Since such wallets are administered by agencies other than banks, they are mandated to send this money to the escrow account with a partner bank. Interest applicable to such deposits varies in accordance with the terms of the agreement between the bank and payment company.

The prepaid payment instrument is classified into four important categories i,e.

  • Closed system payment instruments
  • Semi-Closed system payment instruments
  • Semi-Open system payment instruments &
  • Open system payment instruments

Closed system payment instruments refer to the payment instruments typically bestowed by the businesses for use at their establishment only. Such instruments do not render services like cash withdrawal or redemption. Free charge credit, Ola money falls under this category,

These tools are redeemable at an identified merchant locations which contract specifically with the issuer to accept the payment instrument. Further, these tools do not allow cash withdrawal or redemption by the holder. The leading platform Pay TM comes under this category.

CLOSED WALLET SEMI-CLOSED WALLET
Closed Wallet refers to an e-wallet granted by an entity to a client for buying goods & services exclusively from that entity
Examples: – Amazon.in, Clear trip
Semi-Closed Wallet is an e-wallet that can be utilized to purchase goods and services, as it is a payment instrument that is redeemable at identified merchant locations that contract specifically with the issuer to accept the payment instrument    
Closed Wallet can be utilized – To receive funds and cashback To purchase only from issuer merchant To pay the seller of issuer merchant Semi-Closed Wallet can be used – To pay affiliated merchants against the goods and services purchased. To purchase goods & services from the issuer To transfer funds between users
Cash Withdrawal is not possible for the users of closed wallet Cash Withdrawal is not possible for the users of the semi-closed wallet
Not explicitly prohibited. Permissibility is unclear and will depend on the type of transaction. Allowed for full KYC semi-closed Not for min-KYC semi-closed e-wallets
RBI authorization or PPI License is not a compulsion for clients seeking to leverage closed wallet Banks can work without a PPI license. But the same is not true with Non-bank entities

Given person to merchant spending, the transaction under closed wallet only existsbetween wallet holder and issuer. Allowed only with contracted merchants  for example PhonePe, and Mobikwik
Interoperability is not applicable on Closed wallet Interoperability is permitted only for full-KYC semi-closed wallets

Conclusion

Closed and semi-closed wallet serves different purposes. Where transaction under closed wallet only occurs between the wallet holders and issuer, the semi-closed wallet allows its users to transact money via issuer as well as connected merchants.

Read our article:Know the List of Documents Required for Payment Banks License

Pankaj Tyagi

Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.

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