All About Digital Wallet - Features, Function & Types
What is Digital Wallet?
- A Digital Wallet is an electronic or internet based payment option.
- As it is a virtual wallet, there is no need to carry it physically.
- It can store money virtually along with the information regarding the personal identity of the user of the Digital Wallet.
- The users can pay for various goods and services and transfer funds by using the digital wallet.
- It is also known as the Electronic Wallet (e-Wallet).
- It is pre-paid in nature as the user has to transfer money to this wallet from his/ her bank account.
Features of the Digital Wallet –
- It does not offer any interest rate on the amount that is kept in it.
- It offers cash-back facility to the users for purchasing through it.
- The Digital wallet is pre-loaded money which acts like a Debit Card.
- It is the online account that is based on internet.
- It is the component of “Payment System”, which enables credit and debit card operations, money transfer, smart card and other related money transaction operations.
- It also provides payment, settlement or both of the services after netting all cross obligations.
- Netting involves the offsetting of the multiple payments or positions value in case of exchange among more than one party and determine the party owed remuneration in the multiparty agreement.
- The Digital Wallet falls under “Pre-paid Payment Instruments” in India which is legally recognized.
- The “Pre-Paid Payment Instrument” is defined as per RBI guidelines under the “Payment and Settlement Systems Act”. The value, which is stored in those instruments, represents the amount paid by the card holders through cash, credit card or from their bank accounts.
- The Digital Wallets work under the rules and regulation of RBI ( Reserve Bank of India).
- The companies having “minimum paid-up capital” of 5 Crore and positive net worth of 1 Crore can issue the Digital wallets in India.
- As per eligibility criteria set up by RBI, only the eligible bank can issue the Digital Wallet.
The banks having mobile banking facility can offer the Mobile Wallets.
- (Non Banking Financial Companies) can issue only semi-closed and closed mobile wallet.
- Persons who are authorized under “Foreign Exchange Management Act” (FEMA) can issue Foreign Exchange Wallets.
Functions of the Digital Wallet –
- The users can transfer money from the Digital Wallet via his/her mobile phone or laptop. There is no need of ATM counters or POS system in case of Digital Wallet.
- There is no chance of thefts of cards.
- The people from Rural Areas where ATMs are absent can avail the facility of Digital Wallet by clicking one button.
- This is useful for the persons who do not have any bank account or any kind of credit card or net banking card.
- It reduces the banking transaction costs.
- Micro and small payments can be done by using the Digital Wallet.
- There is no need of any kind of form fill up in case of purchasing some goods as all the information must be automatically entered and updated at the merchant sites.
- It reduces the size of parallel economy.
Types of Digital Wallet –
- In India, there are 3 kinds of Digital Wallets in India i.e. Closed, Semi Closed and Open Digital Wallets.
Closed Digital Wallets-
- It is issued by any entity to purchase services or goods.
- Cash withdrawal is not permitted in this payment system.
- It does not facilitate the settlement and payment for any third party.
- The approval from RBI is not essential for this payment option.
- Example- Various Websites for online shopping like Flipkart etc., cab services uses this option.
Semi Closed Digital Wallets-
- This kind of wallet is used to buy services or goods at a location or group of merchants that have a contract with issuer for accepting this payment option.
- It does not permit cash redemption or withdrawal by the user. One can send money to other accounts or amount can be recharged in the accounts.
- Minimum information regarding a customer is required for Digital Wallets having amount up to Rs. 10000.
- “Official Documents” of the customers are required for Digital Wallets having the amount up to Rs. 50000. This account is non-re loadable.
- Full KYC (Know Your Customer) of the customers is required in case of Digital Wallets having amount Rs. 100000. This account is re-loadable.
- Example- Airtel Money, Paytm etc.
Open Digital Wallets-
- These wallets can be used to buy services and goods including fund transfer at POS (Point of Sales) and cash withdrawal from banks and ATMs.
- Cash withdrawal is limited to Rs. 1000 per day under some conditions.
- Only bank can issue the instruments.
- The money cannot be recharged.
- Example- RuPay, Master Card. M-Pesa (open wallet run by Vodafone and ICICI Bank).