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E-Wallets in India: What Are They and Why Use Them?

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E-Wallets in India: What Are They and Why Use Them?

Countries are rapidly going cashless; getting rid of the need for bills and coins; and so is India.

Apps that enable electronic transfer, along of course with plastic (credit cards, etc.), are the most common ways. A study found Sweden and Canada lead the way, with almost half of transactions now taking place without cash.

India has shown great progress, but of course, change takes time. A big problem is getting used to seeing your money represented on a screen, rather than in your hand. If you can get over that, there are huge advantages.

E-wallets, also known as digital wallets, are very popular in the cashless movement. They’re not new, but they continue to gain popularity. And the market of options is large, changing, and confusing.

Let’s look at what e-wallets are, and the leading options in India.


What’s an E-wallet and How Does it Work?

An e-wallet is basically a digital version of your physical wallet, but with lots more possibilities. It’s usually an app or website that for offline and online monetary transactions from your mobile device or PC.

The Reserve Bank of India (RBI) classifies e-wallets as ‘prepaid payment instruments’ under the Payment and Settlements System Act, 2005.

E-Wallets can not only be used for point-of-sale purchases, but in convenient ways such as paying your bills. They can replace a physical wallet.

E-wallets let you use preloaded money for online or offline purchases, pay bills, book and pay for tickets, transfer funds, and other routine money-related tasks without physical cash. To use an e-wallet, you have to sign up to open an account, which you’ll connect with your actual bank or credit card account.

Most e-wallet services allow you to store your debit or credit card details to quickly top up your balance. This means they also eliminate the need to carry actual cards.

You can have more than one e-wallet account, with different service providers. Really, you can have as many as you think you can manage.

The amount you see in your e-wallet account represents the actual amount stored in the service provider’s bank account. When you transfer money to another wallet by the same provider, the ledger is updated for both accounts. When you make a third-party transfer or pay bills, the provider sends it through.

You move your stored money from your e-wallet account to another e-wallet account, merchant’s current account, or an escrow (holding) account depending on the type of the e-wallet you’re using.

Let’s break these down.


Types of E-wallets and Why to Use Them

There are three types of e-wallets available in India, following the RBI standards: closed, semi-closed, and open.


Closed Wallets

With a closed wallet, you can make full or partial payment for products and services offered by the wallet’s issuer. This makes them popular with online retailers and e-commerce firms.

MakeMyTrip, Flipkart, and BookMyShow, for instance, enable quick and direct purchasing with their wallets. If you return something, they’ll credit the refund amount or cash back to your account. This amount can be then be reapplied towards services or purchasing products from that specific merchant.

Closed wallets don’t let you withdraw cash, transfer funds to another wallet, or transfer funds to your bank account.

Several merchants in India also give special offers and discounts only available through their wallet services attached with your account.



  • Direct purchasing from services you frequently use
  • Discounts and special offers from specific retailers, etc.
  • Quick and easy refunds and crediting of your account


  • Can only use your money in limited ways
  • Limited to the products and services of the issuer
  • Cannot transfer money to your actual bank account or use it with other merchants


Semi-closed Wallets

Unlike a closed wallet, semi-closed wallets let you purchase products or services from third-party vendors. However, the vendor and issuer of the wallet must both be contracted to accept this type of payment.

Non-banking entities must be authorized via the RBI (PPI license).

Services such as Paytm, FreeCharge, Citrus, and Oxigen issue semi-closed e-wallets. These can be used for things like fund transfer, adding money, purchasing products, and withdrawing money to your actual bank account.

The issuing companies also sometimes have cash back offers, discounts, and other attractive offers for the user.

Semi-closed e-wallets are the most popular type of e-wallets in India. Almost all e-commerce merchants, mobile service providers, direct-to-home (DTH) providers, and many others accept money this way.

One area that may concern you is that you have to connect your debit/credit card or actual bank account to use this type of wallet. For example, what if you lose your phone or someone else accesses your account?

If you use services from reputable providers, these shouldn’t be big concerns. These have extra layers of security, such as one-time passwords and personal identification numbers (PINs) for each transaction.



  • Easier to track purchase and deposits, so it’s easier to stick to your budget.
  • Eliminates the hassle of putting bank details or card details each time you do an online purchase
  • Reward points and cash back offers are sometimes available.


  • Purchases are limited to contracted merchants, so there are fewer options


Open Wallets

An open e-wallet has all the features of a semi-closed wallet, but with some banking functions, like ATM withdrawals and fund transfer. These make third-party fund transfer across locations more convenient.

A company can issue an open e-wallet only in partnership with a bank, or the bank itself can also issue one. M-Pesa by Vodafone, PayZapp by HDFC Bank, and Pockets by ICICI Bank are a few examples available in India.

These may sound attractive, but you may not find them very convenient for online purchases or bill payments. Many merchants in India. don’t accept them because they lack the benefits the other two types provide. For a merchant, the other types give them more chances to retain customers. Therefore, open wallets are still far behind semi-closed wallets in terms of end-user benefits.



  • No need to preload money before making transactions.You can withdraw cash even if you don’t have your ATM card with you.


  • Merchants don’t widely accept them, though this may change in the future.


So to tie it all up…

The choices are many and attractive. Consider that when you lose paper money and coins, or get robbed, the money is usually gone. With an e-wallet, you can virtually eliminate that fear. Your pockets also get much lighter.

However, don’t think of an e-wallet as a bank in your pocket. It doesn’t provide interest, and many may say it lacks the reassurance of a physical bank.

It’s probably best to think of an e-wallet as non-physical cash. E-wallets perform much of what you can do with bills and coins. They add convenience and security. And they don’t get sweaty and dirty in your pocket.

You can use as many e-wallets as you like, and this can also help you narrow down which is best for you. In a future article, we’ll look at the leading options.

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