digital wallet refers to an electronic device that allows an individual to make electronic transactions. This would include purchasing items on-line from a store using a computer or a smart phone. An individual’s bank account can also be linked to the digital wallet.

Mobile Wallets or Digital Wallets or e-Wallet apps allows one to pay electricity bills, recharge his mobile, book movie tickets and do a lot more right, from his mobile. By linking his Credit, Debit Card or Bank accounts with these e-Wallet apps, one can easily make a payment using his mobile phone.

One can generally load money into these digital wallets via Internet banking or via Credit or Debit Card. On most e-Wallets, there is a limit of Rs.20,000 for users who have not submitted their KYC documents. Once these documents, are submitted, the limit would be raised to Rs.1.00 lakh. With the e-Wallet app installed on the mobile, there would be no need to carry cash.

RBI guidelines on e-wallet (Pre-paid Payment Instrument)

Pre-paid payment instruments are payment instruments that facilitate purchase of goods and services, including funds transfer, against the value stored on such instruments. The value stored on such instruments represents the value paid for by the holders by cash, by debit to a bank account, or by credit card. The pre-paid instruments can be issued as smart cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers and any such instrument which can be used to access the pre-paid amount.

The pre-paid payment instruments that can be issued are classified under three categories, viz. (i) Closed system payment instruments (ii) Semi-closed system payment instruments and (iii) Open system payment instruments.

  1. Closed System Payment Instruments: These are payment instruments issued by a person for facilitating the purchase of goods and services from him. 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 instruments are not classified as payment systems, e.g., Make My Trip Wallet.
  2. Semi-Closed System Payment Instruments: These are payment instruments which can be used for purchase of goods and services, including financial services at a group of clearly identified merchant locations / establishments, which have a specific contract with the issuer to accept the payment instruments. These instruments also do not permit cash withdrawal or redemption by the holder, e.g., State Bank Buddy, Mobikwik etc.
  1. Open System Payment Instruments: These are payment instruments 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 terminals) and also permit cash withdrawal at ATMs / BCs. E.g. SBI MobiCash, Airtel Money etc.

Eligibility to issue Prepaid Payment Instruments (PPI)

  1. Banks who comply with the eligibility criteria would be permitted to issue all categories of pre-paid payment instruments.
  2. However, only those banks which have been permitted to provide Mobile Banking Transactions by the Reserve Bank of India shall be permitted to launch mobile based pre-paid payment instruments (mobile wallets & mobile accounts).
  3. Non-Banking Financial Companies (NBFCs) and other persons would be permitted to issue only closed and semi-closed system payment instruments, including mobile phone based pre-paid payment instruments.

The following types of semi closed Pre-paid Payment Instruments (PPIs)can be issued, subject to carrying out of Customer Due Diligence, as detailed :-

  1. Up to Rs.20,000/- by accepting minimum details of the customer, provided the amount outstanding at any point of time does not exceed Rs.20,000/- and the total value of reloads during any given month also does not exceed Rs.20,000/-. These can be issued only in electronic form.
  2. From Rs.20,001/- to Rs.50,000/- by accepting any ‘officially valid document’ defined under Rule 2(d) of the PML Rules 2005, as amended from time to time. Such PPIs can be issued only in electronic form and would be non-reloadable in nature.

iii. Up to Rs.1,00,000/- with full KYC and can be reloadable in nature. The balance in the PPI should not exceed Rs.1,00,000/- at any point of time.

Popular e-Wallets in India

  1. State Bank Buddy – State Bank Buddy offered by State Bank of India is the first Indian mobile wallet which is available in 13 Indian languages. Using this, sending money, asking reminders to clear dues, instant bill payments and more can be effected from the mobile. Sate Bank Buddy mobile wallet helps one to do the above activities by linking debit cards or internet banking to it. It allows loading amount into wallet and making payments to contacts on phone book.
  2. PayTM – PayTM is one of the most popular digital wallets. It allows one to add his Credit / Debit cards and link bank account to it. One can make use of QR code to send and receive payments easily. PayTM mobile wallet allows buying movie tickets, online mobile recharge, payment of electricity bills and more using the mobile. PayTM is also an e-commerce website, just like Amazon, Flipkart etc. where lakhs of products are being sold by the sellers. This wallet can be used for purchasing these products also.
  3. Mobikwik – Mobikwik is another versatile & secure app that allows a person to pay or transfer money using the mobile number. It allows making mobile recharge and paying bills in seconds. One can use Mobikwik mobile wallet and buy anything online, that too with good discounts. Making bill payments, mobile recharge, shopping and more has become easy with Mobikwik mobile wallet.
  4. FreeCharge – FreeCharge e-Wallet allows a person to add credit and debit cards which make it easy to make payments. It is the fastest growing digital payment platform, allowing to pay electricity bills, mobile and DTH recharge and more. It enables making online and digital payments securely, using mobile.
  5. PayZapp – PayZapp from HDFC bank is available to customers of all banks and allows making payments with just a single click, by adding credit or debit card details. Card details are totally safe with the bank and there is no cause for worry. PayZapp mobile wallet does three security checks for every transaction.
  6. Pockets – Pockets app is the first mobile wallet app in India which allows a person to make UPI-based payments. ICICI developed this mobile wallet, and it helps to make payments online. Now anyone can shop anywhere, pay anyone and bank with ease. It allows transferring money, book tickets, do mobile recharge and more, with just a single click, sending and receiving payments to and from Pocket users.
  7. LIME – LIME has been launched by Axis Bank, providing payments, banking, and shopping facilities. It is available for account and non-account holders. One can pay shopping bills, mobile recharge, buy movie tickets and more using LIME mobile e-wallet. By just adding credit or debit card details, anyone can make payments through mobile.
  8. PhonePe – PhonePe from Flipkart Group Company works over Unified Payment Interface (UPI) with Yes Bank as banking partner. It allows one to make all payments securely. One can make bank-to-bank transfers using Virtual Payment Address. As it is a UPI app, there is no need to add details of the beneficiary account. PhonePe mobile wallet provides discounts and coupons when shopping online. One can top-up his mobile wallet by linking it to bank account and allows transacting maximum up to Rupees 1 lakh only.
  9. Ola Money – Ola Money allows making payments for all daily needs. Ola Money wallet can be recharged using credit / debit cards or net banking. One can keep track of transactions by looking at transaction history. Paying for the Ola and other cabs also is made easy using this mobile wallet. Ola Money mobile wallet also helps one to transfer money to his friends.
  10. Airtel Money – Airtel Money wallet was launched by Airtel Payments Bank. One can make payments, do mobile recharge and transfer money to any bank account using this mobile wallet. One can shop online with discounts and coupons. Banking and remittance services are supported by Airtel Money. With this e-Wallet app, one can make payments with just a single click.

Effects of Demonetisation

Demonetisation has given a fillip to mobile wallets business.  The Smartphone has become mightier than the wallet today – that’s what demonetisation has proved? For all kinds of needs, from buying candy to transferring money, there are more digital options available than paper. It’s also timesaving. Why stand in bank and ATM queues to get cash when a few seconds of tapping a wallet app on a mobile phone are enough to make a payment? There are a number of options available, leaving many confused about the best way to pay. Should it be net banking, credit cards, UPI, NEFT, RTGS, IMPS, USSD, Aadhaar linked BHIM or a combination of them?

So far, people have grabbed whatever is easily available to pay for coffee,  movie tickets, cab rides and just about anything, and here, e-wallets have scored over others. However, as more alternatives to cash payments evolve, users comfortable with mobile wallets today could shift to an easier digital platform.

Frictionless payments is the future, that is, any payment mechanism which is effortless, without requiring users to remember too many passwords, PINs etc., perhaps biometrics enabled. There’s more to provide a smooth digital payment experience than aspects such as security and ability to attract customers who are used to transact in cash and are reluctant to change.

Future Prospect

In the long term, systems like UPI (Unified Payment Interface) stand a better chance as they enable direct transfer from bank accounts to make payments. Wallets Face a Wall. The winner for access to bank account will be the one that offers the least hurdles to complete a payment transaction. Mobile wallets are popular today. Paytm alone has more than 200 million users. But they have limitations. For one, they are not interoperable. Transferring money requires sender and receiver to have the same company’s account – its Paytm to Paytm, MobiKwik to MobiKwik and Buddy to Buddy. So also, transferring money from wallet to bank account attracts service charge. Besides, the money transferred to a wallet does not earn interest. Even the founders of some mobile wallet companies are not so optimistic about their future, if challenges like interoperability persist.

At present, all wallet companies are not allowed to enable users to access UPI, which enables funds to be transferred from one bank account to another. By the end of 2017, it’s quite possible that people could be ditching their digital wallets and opting for UPI or even voice commands to digital avatars to complete payments. The future is about interoperable payment systems. Apart from lacking interoperability, digital wallets can be used only by Smartphone owners. In India, only 27% of the more than 1 billion mobile phone users have Smart phones, as compared to 70% in China. The rest use feature phones. Affordability, among other factors, has hindered the faster adoption of Smart phones. The digital payment option for feature phones is USSD (Unstructured Supplementary Service Data), which transmits data over GSM networks and is popular in Kenya, Bangladesh, Cambodia and Zimbabwe with their respective services, mPesa, bKash, Wing and EcoCash.

If mobile wallets face multiple headwinds, one of the oldest cashless options, credit and debit cards, have limited reach. About 800 million people carry plastic (mostly debit cards, less than 10% are credit cards) and they are generally used to withdraw cash from ATMs.

Credit cards are a largely urban use phenomenon. Popularity of such payment system depends on merchants’ acceptability which is yet to reach the desired level in the country. Demonetisation saw PoS machine sales go up 200 times, accelerating use of cards. Usage of credit cards climbed 25% and debit cards was more than double of that. The future may be less plastic. Plastic money use is very niche and slow and is likely to remain so for the next five years.

Why carry a card when direct transfer can be done from the mobile. Among the options available today, Unified Payments Interface (UPI), introduced by the Reserve Bank via the National Payments Corporation of India in 2016, looks best suited to enable frictionless transfer of money. Mobile wallets have been around for more than five years and have the first mover advantage. However, using them is a two step process. Paying for an Ola ride requires money to be transferred first to the mobile wallet or account and then to Ola. UPI not only allows funds to be sent from one account directly to another, it is also interoperable. Money is transferred directly from an account to complete a payment, unlike wallets, where it has to be transferred to a wallet company to be used. Survivors will be those who provide merchant and user protection. Trusted payment partner is important. UPI app (BHIM), launched by the government, also transfers money directly between accounts and is linked to the Aadhaar number, which will help to authenticate users through stored biometric records.

Today, digital wallets are popular. Tomorrow, direct payment systems will score over intermediaries such as mobile wallet and plastic money.


Rajeev Shankar
C.M. (Research)


  1. https://www.rbi.co.in
  2. http://economictimes.indiatimes.com
  3. http://www.thewindowsclub.com
  4. Articles published in e-papers and websites.

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