Digital Wallets is a common layman term . Actually in the bankers understanding its called: Prepaid instruments or you can say, Wallets are one of the type of Prepaid instruments.The prepaid payment instruments that can be issued in the country, as per RBI are classified under the four categories:
(i) Closed Wallet (Closed system payment instruments): These are payment instruments generally issued by business establishments for use at their respective establishment only. These instruments do not permit cash withdrawal or redemption.
(ii) Semi-Closed Wallet(Semi-Closed system payment instruments): These are payment instruments which are redeemable at a group of clearly identified merchant locations/ establishments which contract specifically with the issuer to accept the payment instrument. These instruments do not permit cash withdrawal or redemption by the holder.
(iii) Semi-Open Wallet(Semi-Open system payment instruments): These arepayment instruments which can be used for purchase of goods and services at any card accepting merchant locations (Point of sale terminals). These instruments do not permit cash withdrawal or redemption by the holder.
(iv) Open Wallet(Open system payment instruments): These are payment instruments which can be used for purchase of goods and services and also permit cash withdrawal at ATMs
Application of digital wallet :
Consumers are not required to fill out order forms on each site when they purchase an item because the information has already been stored and is automatically updated and entered into the order fields across merchant sites when using a digital wallet. Consumers also benefit when using digital wallets because their information is encrypted or protected by a private software code; merchants benefit by receiving protection against fraud.Digital wallets are available to consumers free of charge, and they're fairly easy to obtain. For example, when a consumer makes a purchase at a merchant site that's set up to handle server-side digital wallets, he types his name and payment and shipping information into the merchant's own form. At the end of the purchase, the consumer is asked to sign up for a wallet of his choice by entering a user name and password for future purchases. Users can also acquire wallets at a wallet vendor's site.Although a wallet is free for consumers, vendors charge merchants for wallets. Some wallet vendors make arrangements for merchants to pay them a percentage of every successful purchase directed through their wallets. In other cases, digital wallet vendors process the transactions between cardholders and participating merchants and charge merchants a flat fee.