Explainer: What are mobile wallets?

Once you download a mobile wallet app and complete your KYC, you can add money to the wallet via your debit card, credit card, UPI or net banking.

Since the Reserve Bank of India imposed curbs on Paytm Payments Bank on January 31 after it was found to be in non-compliance with regulations, customers have had concerns related to the bank’s mobile wallet.

Here’s an explainer on mobile wallets – what they are, what they can be used for, and how safe they are. Thanks to an FAQ by the RBI, Paytm Payments Bank’s wallet users have greater clarity on what to expect.

What is a mobile or digital wallet?

A mobile wallet works like a regular wallet – you store money in it to make payments – but it’s completely digital and is therefore great from a convenience and safety point of view.

It allows you to make instant payments by just opening up the wallet app and scanning the QR code. The money is debited from the wallet. It works quicker than credit or debit cards and helps those who might not have or use cards.

What are the well-known mobile wallets in India?

Many banks and non-bank entities offer mobile wallets. Paytm, PhonePe, MobiKwik, and Amazon Pay are some well-known mobile wallets in India.

Following the RBI’s recent restrictions on Paytm Payments Bank, however, people will not be able to use their Paytm wallets as before.

As per the FAQ released by the RBI, one can use, withdraw or transfer money to another wallet or bank account to the extent of the existing balance in the Paytm wallet. If you are a minimum KYC customer (more on this later), you can use your existing balance only for merchant payments.

After March 15, one cannot add money to a Paytm wallet or receive any credit, other than cashbacks or refunds.

What’s the size of mobile wallet payments in India?

RBI data shows that there were 596 million wallet transactions during December 2023 totalling Rs 21,700 crore in value. These comprise purchase transactions and fund transfers made via wallets.

With about a 64 percent share, Paytm Payments Bank, which owns Paytm wallet, accounted for the biggest chunk of wallet transactions by value. IDFC First Bank was a distant second at 9 percent. As users shift from the Paytm wallet, the payments bank may experience a drop in market share.

Also read: Paytm Bank fiasco: Are your investments using Paytm Money safe?

How do you use a mobile wallet?

Once you download a mobile wallet app and complete your KYC (know your customer) details, you can add money to the wallet via your debit card, credit card, UPI or net banking. A wallet provider can charge you a small convenience fee for top-ups using a credit card.

Once the wallet is loaded, you can use the available balance for utility bill payments, mobile recharges, purchases on e-commerce websites and physical stores. Unlike net banking or UPI, where money is debited directly from your bank account, when you use a mobile wallet, the money is deducted from the wallet balance.

Also read: RBI action against Paytm: What would be mutual fund managers’ reaction?

What do RBI regulations say about mobile wallets?

One can go for either minimum KYC or complete KYC. The former gives a user access to select wallet features and enables them to load only smaller amounts. As permitted by the RBI, wallets with full KYC can have a balance of up to Rs 2 lakh.

A wallet user must go for a complete KYC within 24 months of opening an account. Failure to do so restricts the user from being able to add more money to the wallet or transfer money to a bank account. But there are no restrictions on using the existing balance.

Minimum KYC entails a user providing his name and ID proof in the form of a voter’s card, driving licence, passport or PAN. Complete KYC involves providing your PAN and Aadhaar OTP verification, followed by a video KYC verification.

For Paytm wallet users, the RBI FAQ issued on February 16 mentions that those with full KYC can approach the payments bank to close their wallets and transfer the balance to another bank account. Those with minimum KYC can either spend their existing balance or ask for a refund.

Are mobile wallets a safe mode of payment?

Yes, they are a safe mode of digital payment. “When you make payments via a wallet, you do not expose your entire bank balance to a potential fraud. Your exposure is only to the extent of the amount that you have loaded in the wallet,” says Parijat Garg, a fintech consultant and a former CRIF High Mark (credit bureau) executive.

Does losing your mobile phone, put the money in the wallet at risk? No, unless the fraudster knows your wallet PIN, that person will not be able to misuse your wallet balance.

That said, Garg suggests it’s best to think of a wallet as an intermediate store of money into which you don’t park a large sums of money. This can help limit your risk.