Bharti Airtel is in talks with banks to expand its closed wallet service Airtel Money into an open wallet service, reports Mint, quoting K. Srinivas, President of the telcos consumer business.

Airtel currently has a prepaid payment system license which allows users to deposit cash into Airtel Money, but they can only use it for payments there after. Because prepaid payment instruments are a closed loop system, they cannot withdraw cash. By tying up with banks, Airtel will be able to allow customers to withdraw cash. Talks are on, but then talks between banks and telcos for mobile payments in India have been on for years now, and they have typically been at loggerheads over issues of ownership of the customer.

The arbiter, rather, the Indian banking regulator RBI, created policies which favor banks, but Airtel appears to have found an interesting – and if it works, brilliant – means of addressing this imbalance – start a prepaid payments business which doesn’t need banks, get users on board, then look to open up the platform to banks. Airtel has a business correspondent joint venture with the State Bank of India, but that appears to be in deep deep deep freeze.

How This Should Work

We’re curious about how exactly this will work. How should it work? An Airtel Money customer should have options of multiple banks (wherever she has an account) to choose from for depositing money into the Airtel Money wallet, withdrawing money from the Airtel Money account, and also for transferring to another users bank account. There should be one wallet, multiple banks, multiple services. Remember that the customer, in this case, is Airtel’s as much as it is the banks customer. Sounds easy, but with transaction costs, network costs and more than that, big egos, it’ll probably be difficult to get this right.

The ideal situation was an independent wallet system – across telecom operators and across banks, but the RBI killed it with its hesitant and closed (albeit relatively secure) approach to mobile payments. The banks have done previous little to promote mobile payments, and among the telecom operators, only Airtel has been awarded a prepaid payments license.

These forced silos will inhibit growth of mobile payments in India, and deter unbanked citizens from coming on board. There is still some hope with IMPS, though.