Voice of the Industry

Staying competitive in ecommerce: the case for closed-loop wallets

Tuesday 14 November 2023 10:45 CET | Editor: Mirela Ciobanu | Voice of the industry

Closed-loop wallets are becoming an essential tool for the ecommerce industry. Abhinav Paliwal from PayNet explores why.

In the ever-evolving world of ecommerce, the quest for seamless and secure payment solutions is a never-ending one. In this pursuit, closed-loop wallets have emerged as a game-changer for both ecommerce merchants and merchant aggregators.

These digital wallets, operated within a controlled ecosystem, offer numerous advantages that are hard to overlook. In this blog, we will explore why closed-loop wallets are becoming an essential tool for the ecommerce industry.


What is a closed-loop wallet?

Before diving into the reasons why closed-loop wallets are indispensable, it's crucial to understand what they are. Closed-loop wallets are digital payment systems that are primarily designed to be used within a specific ecosystem or network.

They are typically operated by ecommerce companies or merchants, offering customers the convenience of storing their funds within that particular platform.


Reason 1: enhanced security

Security is paramount in the ecommerce industry. With the rise in online payment fraud, customers and merchants alike are looking for ways to protect their financial transactions. Closed-loop wallets provide an extra layer of security, as transactions are processed within a closed environment, reducing the exposure to external threats.

Additionally, these wallets often incorporate advanced authentication measures and encryption protocols, making them a secure choice for ecommerce transactions.


Reason 2: customer convenience

For customers, convenience is king. Closed-loop wallets provide a convenient and user-friendly payment option. Users can store their payment information securely within the ecosystem, eliminating the need to re-enter it for every purchase.

This streamlined checkout process can lead to increased customer satisfaction, reduced cart abandonment rates, and higher conversion rates for ecommerce merchants.


Reason 3: loyalty programs and rewards

Closed-loop wallets offer ecommerce merchants the opportunity to implement robust loyalty programs and rewards systems. By encouraging customers to use the wallet for their transactions, merchants can provide incentives such as cashback, discounts, or loyalty points.

These rewards not only drive customer retention but also help in increasing the Average Order Value (AOV), ultimately benefiting the bottom line.


Reason 4: reduced transaction costs

Payment processing fees can be a significant expense for ecommerce merchants. When customers use third-party payment gateways, merchants often pay a percentage of each transaction in fees.

Closed-loop wallets, on the other hand, can significantly reduce transaction costs, as they are processed within the platform itself, eliminating the need for external intermediaries.


Reason 5: valuable data insights

Data is the lifeblood of modern ecommerce. Closed-loop wallets provide merchants with a treasure trove of valuable customer data. This data can be used for personalised marketing, product recommendations, and improving the overall customer experience.

By understanding their customers better, ecommerce businesses can tailor their strategies to drive sales and growth effectively.


Reason 6: easier integration and control

Ecommerce businesses can have more control over their payment ecosystem when using closed-loop wallets. They can customise the wallet features, design, and functionality to align with their brand and user experience.

This level of control is often challenging to achieve when relying solely on third-party payment gateways.


Reason 7: regulatory compliance

The ecommerce industry is subject to numerous regulations, especially concerning payment data and customer information. Closed-loop wallets can help merchants ensure compliance with these regulations, as they have more control over the entire payment process, making it easier to implement and maintain compliance measures.


“Closed-loop wallets aren't just about transactions; they're about relationships. Loyalty programs and rewards create lasting bonds with customers.”

— Jane Customer Loyalty Specialist



In an era where ecommerce is rapidly expanding, closed-loop wallets have emerged as a critical tool for both ecommerce merchants and merchant aggregators.

They offer enhanced security, customer convenience, loyalty program opportunities, reduced transaction costs, valuable data insights, easier integration and control, and regulatory compliance. These benefits can significantly boost the success of ecommerce businesses and contribute to a seamless and secure shopping experience for customers.

Therefore, it's no surprise that the adoption of closed-loop wallets is on the rise in the ecommerce world, and every merchant and aggregator should consider embracing them to stay competitive in the market.


About Abhinav Paliwal

With over 15 years of experience in the financial services and technology sectors, I am the co-founder and CEO of PayNet Systems, a leading provider of neo-banking and payment solutions for enterprises.




About PayNet

PayNet is a White Label Neo-Banking Platform, for new-age financial institutions, helping them thrive in the industry using our agile cloud-native and API-first technology. Our software platform enables organisations to offer digital banking and digital payments to their customers, with speed, security, and scalability. PayNet Cloud is PCI DSS certified and has a 99.9 % uptime guarantee.

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Keywords: ecommerce, online payments, mobile payments, digital wallet, API, neobanks
Categories: Payments & Commerce
Companies: PayNet
Countries: World
This article is part of category

Payments & Commerce


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