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What is the difference between semi-closed wallets and closed wallets? Why don't Indian regulations allow closed wallets online? - Hire CA : Knowledgebase
Closed wallets are very much allowed in India. There are lots of them like Freecharge credit, Ola money etc.
For classification and differentiation of wallets, it's best to refer how RBI looks at them, so here is reproduction from Page on rbi.org.in
The prepaid payment instruments that can be issued in the country are classified under the four categories viz. (i) Closed system payment instruments (ii) Semi-Closed system payment instruments (iii) Semi-Open system payment instruments and (iv) Open system payment instruments.
Closed System Payment Instruments: These are payment instruments generally issued by business establishments for use at their respective establishment only. These instruments do not permit cash withdrawal or redemption. Example - Freecharge credit, Ola money etc.
Semi-Closed System Payment Instruments: These are payment instruments which are redeemable at a group of clearly identified merchant locations/ establishments which contract specifically with the issuer to accept the payment instrument. These instruments do not permit cash withdrawal or redemption by the holder. Example - Paytm.
Semi-openSystem Payment Instruments: These are payment instruments which can be used for purchase of goods and services at any card accepting merchant locations (Point of sale terminals). These instruments do not permit cash withdrawal or redemption by the holder. Example - several private label cards issued by merchants.
Open System Payment Instruments: These are payment instruments which can be used for purchase of goods and services and also permit cash withdrawal at ATMs. Example - Almost every Visa, MasterCard or Rupay card issued in India.
Mobile Prepaid Instruments: The prepaid talk time issued by mobile service providers. This value of talk time can also be used for purchase of 'value added service' from the mobile service provider or third-party service providers.