What are digital wallets and can they be used for loan disbursement?

Digital wallets are secure applications or platforms that allow users to store money in a digital format, as well as make payments or transfers through their mobile devices or computers. Usually, they will link to a user's bank account, credit card, or funds can be loaded directly onto the wallet. Digital wallets will often be used for various transactions such as payment of bills, online shopping, and peer-to-peer transfers.

In business loans, a digital wallet may be used as a method of loan disbursement, particularly in digital lending ecosystems. The lender may disburse the approved and sanctioned loan amount directly via the borrower's digital wallet which will then allow the borrower to continue using that money for their business or transfer to a bank account. This method is appropriate for small businesses or entrepreneurs that may not have easy access to traditional bank access.

Digital wallets used for loan disbursement are governed and subject to regulations and the lender's internal policy. The RBI has developed extensive frameworks and guidelines to ensure transparency, protection of the borrower and accountability when lending digitally and/or using a digital wallet. Based on recent directions, all aspects of digital lending platforms and service providers must abide by thorough reporting and operational standards which must verify that any disbursement through a digital wallet is secure, traceable, and responsible.

Borrowers should ensure that their digital wallet is compliant with Indian regulations and that they have linked that wallet to identity and KYC. While the use of a digital wallet for ease and speed; it is important to understand the terms and conditions of the disbursement and the security measures surrounding the disbursement.