Wallet Tiering

Wallet tiering is the structure a digital wallet, e-money or mobile money provider uses to divide its accounts into levels, each with its own identity checks, limits and permitted features. A customer starts in a lower tier with simple onboarding and modest limits, and moves to higher tiers by completing further verification or meeting other conditions. The approach lets providers serve a broad customer base, including people without full documentation, while keeping the risk of fraud and money laundering under control.

Tiering is closely linked to the wallet KYC level, which describes how far a customer's identity has been verified. The KYC level is about the customer; the tier is the product the provider builds around it, combining verification with limits, features, pricing and sometimes regulatory classification. In many countries the tiers are defined, at least in outline, by the central bank or financial regulator.

A typical tier structure sets out, for each level:

• Entry requirements. The information and checks needed, from a verified phone number at the bottom to full identity and address verification at the top.
• Limits. Maximum balance, single-transaction size, and daily or monthly totals for sending, receiving and withdrawing, described under wallet limits.
• Features. Whether the wallet can be used for cash-out, international transfers, merchant payments, linking to bank accounts, a debit card or credit products.
• Monitoring intensity. The rules and thresholds used in transaction monitoring, which may be tighter for lower tiers because less is known about the customer.

Providers may also create special tiers for businesses, merchants and agents, such as a merchant wallet with higher receiving limits, or a business wallet that requires know-your-business checks on the company and its owners.

Tiered approaches are widely endorsed as a way to support financial inclusion without weakening anti-money laundering controls. FATF guidance on financial inclusion accepts that lower-risk products can be subject to simplified measures, provided limits and monitoring keep the risk low. Many African and Asian central banks have adopted tiered regimes for mobile money, typically with two or three tiers whose balance and transaction caps rise with verification. In India, prepaid payment instrument rules distinguish small wallets opened with minimum details from full-KYC wallets. In the European Union, low-value e-money products can benefit from certain due diligence exemptions under the anti-money laundering directives, subject to strict thresholds.

Where a regulator sets the tiers, providers must apply them exactly and report on the number of accounts and the value held in each. Where the rules are principles-based, providers design their own tiers but must justify them in their risk assessment.

Tiering offers advantages to customers, providers and regulators. Customers can open a wallet in minutes and start using it immediately, then upgrade when they need more. Providers reduce onboarding costs and drop-off, since many customers never need higher limits, and they can price premium features for higher tiers. Regulators get a framework in which risk is proportionate to access, rather than a choice between excluding people and allowing anonymous accounts with no limits.

Lower tiers are attractive to criminals precisely because they are easy to open. Fraudsters create many low-tier wallets using stolen or rented identities and SIM cards, and use them to receive scam proceeds or to split large sums into amounts under the limits. Providers respond by limiting the number of wallets per person or device, linking related accounts, and applying limits across all wallets held by the same individual. Poorly designed tiers can also frustrate genuine customers, for instance if limits are so low that a single salary payment or remittance cannot be received, which pushes users back to cash or informal channels.

Moving between tiers must be well controlled. Upgrades need reliable verification, and the provider should keep evidence of what was checked and when. Downgrades occur when documents expire, information is found to be false or the customer becomes high risk, and the customer should be told what is needed to restore access. Some regulators require providers to re-verify higher-tier customers periodically. Upgrades are also an opportunity to apply source of funds verification for customers whose expected activity is high, so that the highest tiers carry checks closer to those of a bank account.