Those Reserve Bank of India (RBI) has allowed Prepaid Payment Instruments (PPI) users to conduct Unified Payments Interface (UPI) transactions through third-party mobile apps, thereby enhancing the scope of digital payment services in India.
Now users can transfer or receive funds through UPI in their PPI wallet using third party apps, making it interoperable. Previously, transactions could only happen if both the sender and receiver used the same Third party application Vendors.
A Prepaid payment instrument is a financial tool that allows the user to load funds onto a card or digital wallet for future transactions. In India, PPIs includes mobile wallets such as Paytm, PhonePe, and MobiKwik, as well as payment gateways such as Razorpay and Instamojo.
“Currently, UPI payments from/to a bank account can be made using the UPI application of that bank or a third-party application provider. However, UPI payments from/to a PPI can only be made using the mobile application provided by the PPI issuer will be delivered,” RBI said in a Statement.
“It has been decided to allow UPI payments from/to fully KYC PPIs through third party UPI applications. This will allow PPI holders to make/receive UPI payments through the mobile application of third party UPI applications,” RBI said.
A PPI issuer allows the holder of only its full know-your-customer (KYC) to do PPIs UPI payments by linking their customer PPIs with its UPI handle. UPI transactions made through a PPI on the issuer’s application are authenticated using the customer’s existing PPI credentials. As a result, the transaction is pre-approved before it reaches the UPI system, the central bank clarified in the statement.
In addition, a PPI issuer acting as a payment service provider cannot onboard customers from another bank or PPI issuer.
A PPI issuer can also enable the discovery of its full KYC PPIs on third-party UPI mobile applications, allowing them to be linked to their payment service provider handles. RBI said that UPI transactions initiated by PPIs through third-party UPI apps will be authenticated using UPI credentials.
Significant move towards financial inclusion
PPIs can include payment wallets, smart cards, magnetic chips, vouchers, and mobile wallets.
PPIs have traditionally struggled with limited compatibility with mainstream banking platforms. By integrating PPIs with UPIthe RBI has simplified connecting digital wallets with UPI apps, streamlining transactions such as bill payments, purchases and transfers. Users can now link fully verified PPIs with third-party UPI apps, expanding transaction options.
RBI’s move to enable UPI payments through full KYC PPIs on third-party apps is a big step towards financial inclusion. This integration improves digital transaction accessibility and convenience, enabling seamless usage across platforms. For rural communities with limited banking infrastructure, it is a significant advance. The enhanced interoperability between PPIs and UPI simplifies transactions and enhances trust and security with pre-approved authentication.
According to RBI, PPIs can be issued by banks and non-banks. Banks can issue PPIs after getting approval from RBI. The non-bank PPI issuers are companies incorporated in India and can operate a payment system for issuing PPIs to individuals/organizations after obtaining authorization from the RBI.
The money collected by PPI issuers should be used to make payments to merchants who are part of the acceptance arrangement and to facilitate fund transfers or Discount services on behalf of PPI holders.
India’s flagship UPI is a global success story and an example of effective Digital Public Infrastructure. UPI saw one tenfold increase in volume in the last four years, from 12.5 billion transactions in 2019-2020 to 131 billion transactions in 2023-2024, or 80% of all digital payment volumes.
In December the RBI allows small finance banks To extend pre-sanctioned lines of credit through UPI in an attempt to expand the reach of credit on UPI. The RBI has too proposed small businesses adopt digital payment systems, such as the UPI, to create a digital footprint for their financial transactions, making it easier for lenders to assess the company’s finances and reduce the credit gap.
Watch out: New age of payment solutions
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