The Reserve Bank of India (RBI) has taken a significant step to enhance India’s digital payments ecosystem by allowing prepaid payment instruments (PPIs) to access Unified Payments Interface (UPI) via third-party applications. Previously, UPI-enabled transactions for PPIs could only be processed through the issuer’s proprietary app. However, with this new regulation, users of full-KYC PPIs can now conduct seamless transactions using popular third-party UPI apps such as Paytm, Google Pay, and others.

The Evolution of UPI for PPIs

This move stems from the RBI’s Development and Regulatory Policies statement issued on April 5, 2024. The update permits full-KYC PPIs to leverage the expansive network of UPI through third-party apps, making it easier for users to send and receive payments directly from their PPI wallets. The process involves authentication via the issuer's app, with pre-approved transactions routed through the UPI system.

This development aligns with RBI’s ongoing efforts to foster financial inclusion and drive innovation in payment systems, further strengthening India’s position as a global leader in digital transactions.

Key Features and Guidelines

• Eligibility: Only full-KYC PPIs are permitted to access UPI transactions through third-party apps. This ensures a secure and verified user base for digital payments.
• Authentication: Transactions will be authenticated using the customer’s existing PPI credentials on the issuer’s app, ensuring safety and compliance.
• Limitations: PPI issuers are restricted from onboarding customers from other banks or PPIs. However, they can facilitate the discovery of their PPIs on third-party apps.
• Convenience: Users can now link their PPI wallets to their UPI handles and manage payments without depending solely on the issuer’s interface.

Impact on Digital Payments

The integration of UPI with PPIs via third-party apps is expected to significantly boost digital payment adoption in India. With over a billion UPI transactions conducted monthly, this update will streamline payment processes for mobile wallet users, fostering greater ease and flexibility.

For example, users with wallets like Paytm or Google Pay can now perform UPI transactions directly from their PPI balance, removing previous limitations and enhancing the overall user experience.

A Secure and Scalable Future

By introducing this policy, the RBI has ensured that digital payments remain secure, scalable, and user-friendly. The pre-approval mechanism for transactions guarantees that only authenticated users can access the service, maintaining transaction integrity.

As India continues its journey towards a cashless economy, initiatives like this will play a critical role in achieving broader financial inclusion goals.

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