Closed-loop wallets: more than just about payments

Closed-loop wallets: more than just about payments

India has seen an incredible surge in the adoption of wallets as a payment instrument in the recent past. It all started as an endeavour to reduce the friction in the painful experience of making online payments in India — courtesy the 2 factor authentication through OTP. As e-commerce and other online transactional services started to grow, alongwith a significant uptick in smartphone adoption — the OTP issue had taken centre-stage amongst the problems plaguing online commerce in India.

The situation was ripe for multiple startups to stake a claim in this opportunity of “making payments seamless”. And thus, arose the ilk of “wallets”. Customers could simply lock up some amount of their money with companies operating wallets, and in return, they could perform transactions across multiple online commerce merchants without the hassle of 2FA.

Interestingly though, the concept of a wallet was simply a digital avatar of something that had existed for a long time — gift cards and prepaid cards. Wallets provided 3 important upgrades on these pre-existing cards:

  1. Wallets were digital, so they could be easily integrated into online payment flows.
  2. Wallets could be easily topped-up online without requiring any significant physical effort.
  3. Wallets could be used across different merchants (open-loop wallets).
In all the frenzy surrounding digital wallets, the gift and prepaid cards were soon relegated to the realm of a distant memory.


It is easy to get caught up with the purported benefits of digital wallets as a payment instrument. But, there’s an important dimension to their use in the current market, which drives their usage — cashbacks.

Without cashbacks, wallets would just be a proxy system where customers would load money as and when required. Since loading money into wallets still, relies on the 2FA system, it would end up being rendered ineffective and fall into disuse over time.

The wallet companies understood this very well, and to drive up the usage of digital wallets, they came to rely heavily on the practice of cashbacks. There are cashbacks for loading money into the wallet, and there are cashbacks for spending that money.

Soon enough, the practice of cashbacks was able to condition the behaviour of consumers to make greater use of the wallets.

Closed-loop wallets & cashbacks

We at UrbanPiper understood the power of combining payments and cashbacks to give a facelift to the good old gift cards and prepaid cards.

Our platform allows merchants to deploy their self-branded wallets to help their customers not only have a seamless payment experience while placing online orders, but it also serves a purpose of building customer traffic through the effective use of cashbacks.

Cashbacks provide a tangible and discretionary power to customers, unlike the nebulous and circuitous concept of loyalty points and reward redemptions.

As of today, our platform can support a merchant to not only use wallets for online transactions but also, for in-store transactions. This gives their customers a slick payment experience and also reduces the problem of cash and change while dealing with increased customer traffic at their stores.

Just to share some insights:

  • about 15% of all online transactions are made through wallets.
  • for every 2 online order transactions, customers make 1 in-store transaction using prepaid wallet.
  • the total volume of prepaid transactions is nearly Rs.1.5 crores.

All the numbers around the adoption and usage of the closed-loop wallet system for merchants indicate that the wallet as a loyalty instrument is just as important, if not more, as a payment instrument.