What is an E-Wallet?

WHAT IS AN E-WALLET?

With the constant evolution of technology, traditional ways of making payments for any goods and services that we purchase have also changed. Cryptocurrency and E-wallets are the new mode of payment that not only is it cashless, but it is also efficient. Digitalisation of payment and monetary transactions is one of the goals that the government is trying to achieve in our country. An e-wallet (short for electronic wallet) is a digital tool that allows users to store money electronically and make payments or transactions through mobile apps or websites. It’s a convenient mode of payment where a digital wallet holds digital funds. In the past few years after the introduction on e-wallets, there has been a tremendous increase in the usage of e-wallet instead of cash. With its easy to use and quick transaction ability it has been adopted widely in India.

In simpler word, e-wallets are account you hold virtually which helps in making quicker payment. Due to its efficiency and the benefit of avoiding the hustle of physical cash, people are widely using this mode of payment. Some popularly well-known e-wallets are Amazon Pay, Ola Money, Paytm, etc.  The accessibility of this wallet is very simple as it can be accessed from any device connected to internet. There are various types of e-wallets so that these wallets can be classified based on their requirement and purposes. They are:

1. Closed wallets: These wallets can be used only for specific services. For an example, Ola Money can be used only for paying for Ola rides. 

2. Semi-Closed Wallet: These wallets can be used for a range of goods and services; however, the cash cannot be withdrawn. An example to this is Amazon Pay, which not only helps with paying any transaction related to Amazon purchases but also of other online transactions.

3. Open Wallet: Unlike the previous two, this wallet’s fund can be withdrawn and also be used for online transactions. 

   
   

E-wallet is hugely desired for its convenience in making a transaction, paying utility bills, transfer of funds. E-wallets are highly secure payment method as it has multi-factored authentication which helps to protect the personal and financial information. In order to promote the use of e-wallet, many companies engaging in this field offer cashback and discounts for most of the transactions. One good example for this is Amazon Pay, which after every transaction gives a coupon which offers good number of cashbacks and discounts. These wallets though digital, they can be used for offline payments in daily life by scanning a QR. 

HOW DOES E-WALLET WORK?

For the usage of such wallet, one must download/install the digital wallet app. On installing, the user must fill in certain details in respect to their personal details, after which details of their debit or credit card has to be provided, in order to connect the account to the bank account. One might be skeptic with the necessity to link their bank account with any online page or app, however e-wallets are encrypted along with information which ensures the security of our bank details. Money has to be added to the e-wallet in order for one to carry out their transaction. Once authorised, the wallet is ready for use. Some popular technologies e-wallets are:

1. Quick Response (QR) Codes: QR Codes are most commonly used technology to use e-wallets. They are barcode that encode information into a black and white pattern, scanning which the details of the transaction are provided and transaction takes place. Many small stores also take the help of QR Code to accept payments.

2. Magnetic Secure Transmission (MST): One more technology that enables smartphones to transact payments through a pre-chip magnetic stripe system is the Magnetic Secure Transmission. It generates a magnetic signal which enables transaction without any equipment. 

3. Near Field Communication (NFC): This technology connects two smart device and transfers information using electromagnetic signals. However, for doing so, the devices must remain close to each other.

LEGAL PROVISIONS

E-wallets are widely used; however, it also suffers with various drawbacks, which gives rise to the necessity to have laws to govern this system of online payment. Laws are required to ensure that e-wallets aren’t used for the wrong and are secured. Legal issues may arise in any form, if not governed properly. For such reasons, the Reserve Bank of India acts as a regulatory body for such transactions and also supervises the working and functioning of this system. 

The Payment and Settlement System Act, 2007, is one such act that regulates e-wallets. The said act was introduced to regulate and govern payment system in India. Payment system is a system that enables payment between payer and payee. It includes e-wallet also under this system. The act empowers the Reserve Bank of India to regulate the payment system by setting a “Payments Regulatory Board”. The act also lays down that for adopting a payment system, the permission of the Reserve Bank of India is required. For such permission to be acquired, an application along with ‘No Objection Certificate’ from a regulatory body is to be submitted within 30 days of obtaining the clearance. Once permitted, the Reserve Bank of India will conduct an inquiry about various factors to verify the application. After such inquiry only will it decide to permit or reject the application. The application has to be disposed within 6 months from the date of filing. If the applicant is dissatisfied regarding the rejection, then he can file an appeal before the Central government within 3 months of receiving the rejection.

Information Technology Act, 2000 is also one such act that helps in governing the e-wallet. However, the act directly doesn’t regulate the system instead it helps in punishing cyber crimes that have been committed through the means of e-banking which includes e-wallet as well. Similarly, the Indian Penal Code, 1860 also indirectly helps in regulating the system as any act such as forgery, cheating, fraud etc., through the means of E-wallet are considered a crime. Punishment for such acts under the said two acts can be either criminal or civil liability. 

CONCLUSION

E-wallets are very efficient and quick form of payment. Due its easy user-friendly features it is in constant use by the consumers. E-wallet may have lots of benefits however, it also suffers with certain limitations such as shifting from using cash and cards to a contactless payment method is not easy for a larger part of the population, there is a risk of your device getting hacked by any third part which gives the hacker access to the e-wallet, so e-wallets aren’t as great concept as they seem when implemented in reality. 

E-wallet is a relatively new concept as result of which there aren’t many laws to protect the user and to supervise the system. At present Payment and Settlement System Act, 2007 is somewhat the most relevant law that has to be looked into, in case of any dispute or problem that shall arise from E-wallets. E-wallets have to abide to the rules laid down by the Reserve Bank of India. In order to protect the privacy of users, a bill has been proposed namely, ‘Data Protection Bill’ which suggests data protection methods. 

Over the past few years since its introduction, E-wallets have suffered due to the immense popularity of UPI which doesn’t require a separate wallet instead the transactions take place directly between bank-to-bank. E-wallets have played a significant role in promoting digital payments in India, especially post-demonetization, and are an integral part of the country's move towards a cashless economy.