RBI Reviews Closed-Loop eWallets Used By EV Services Following BluSmart's Collapse

The Reserve Bank of India (RBI) will examine digital wallets used by electric vehicle (EV) platforms following the unexpected collapse of BluSmart, the country's major all-EV taxi service.

The sudden collapse of BluSmart left users unable to access funds held in their accounts, as a result of which the RBI has now decided to investigate the rising use of such wallets in the EV ecosystem.

What Happened With BluSmart Wallets

BluSmart had set up a digital wallet, which allowed users to load funds for booking rides and using EV charging stations.

Following BluSmart’s shutdown, many users who had added money to the app’s digital wallet were left unable to access or recover their balances.

In April this year, the company further notified users that refund processing could take as long as 90 days. The collapse, along with allegations of fraud against the company only heightened concerns about the growing use of these loosely regulated wallets.

Lack Of Regulation Of Closed-Loop Wallets

The situation highlighted a lack of safeguards for users who deposit funds in closed-loop wallets, which are payment systems that are limited to a single platform.

Closed-loop wallets, which are very common in the digital services sector, are not directly regulated by RBI, unlike open-system wallets, which are under supervision. This regulatory gap makes such wallets vulnerable in the event of a platform failure.

In light of these developments, the RBI has now initiated informal consultations with operators of EV charging stations and other app-based services to assess potential risks for consumers, according to a report by Bloomberg

The RBI is also considering initiating several measures in this regard, the report said.

One option is that companies set up escrow accounts to protect consumer balances, similar to the regulations for payment aggregators. The RBI is also considering the expansion of its Prepaid Payment Instruments (PPI) guidelines to include large-scale closed-loop wallets, the report added.

Though no formal decisions have been arrived at, but the RBI's stance could lead to tougher controls for digital wallets, particularly in areas with prepaid models, according to the report.