Monday, 28 November 2016

5 things to know about mobile wallets

On November 8, 2016, the Indian government announced that all Rs. 500 and Rs. 1000 notes of the Mahatma Gandhi Series would cease to be legal tenders from midnight. One cool outcome of this sudden move that's caught everyone attention is the spike in adoption of mobile wallets. While I used a mobile wallet as an in app feature in some popular apps such as Zomato and Uber, I had never really used one as a stand alone app prior to the demonetisation. Now that I am compelled to use one, I did some reading about mobile wallets to answer the questions which I had. You might find them useful as well.

1. There are many mobile wallet brands in India. What's the difference between them? 

There are close to 20 mobile wallet brands operating in India today. While by definition they are all mobile wallets, they can be broadly bucketed into 3 types:

The open wallets are those launched by banks or in partnership with a bank. These apps allow purchase of goods and services, fund transfers and cash withdrawals at banks and ATMs. Apart from payments to merchants, these apps allows the user to send money to a bank account via a linked mobile number.  Vodafone M-Pesa and ICICI Pockets are examples of open wallets.

Semi-closed wallets :  With this type of apps, one can deposit money into the app, pay affiliated merchants but cannot withdraw money from them. So the money one loads into the app will have to be spent. PayTM and Airtel Money are semi closed wallets.

Closed Wallets : This type of wallets are typically the ones such as Freecharge.  They are issued by companies to consumers for buying goods and services exclusively from that company. This type of wallets are popular with e-commerce companies.

2. What happens to the money which is preloaded?

When you opens an account with a mobile wallet operator, they opens an escrow account and deposits the money that is preloaded into that account. Only when you makes a payment using the wallet, does the amount get credited into the wallet operator's account. Neither the merchants or the wallet operator can access this money or benefit from the money lying in your wallet.

3. Why should I choose mobile wallets when I already have net banking facility?  

Making payments using a mobile wallet is far more convenient than using net banking. Money can exchange hands in matter of a gentle tap while net banking is far more tedious. Moreover, net banking is perilous, especially while making online payments as the entire account is exposed to a potential fraudster. While wallets do have a far less stringent authentication process but the money that is exposed to a potential fraudster is way lesser.

4. How safe are mobile wallets?
While I did not find any satisfactory answer to this question but my personal experience says that it does have its flaws where safety is concerned.  My primary concern is the authentication process. It is far more relaxed than every other payment instrument (of course, not counting physical wallets). Anyone with access to my mobile phone and its password can use my wallet to make a payment. On  a slightly paranoid note, the credit/ debit card information stored in the app can be compromised easily. While the RBI has laid down strict policy guidelines, I am not sure how much of these safety norms are really followed and what the checks and measures are.

5. How do mobile wallet operators make money? 

Each mobile wallet operator focusses on acquiring as many merchants as they can as their business model is based on commission from the merchants and payments for others apps such as Uber.


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