The Reserve Bank of India (RBI) on Friday allowed prepaid payment instrument (PPI) holders to make and receive UPI payments through third-party mobile applications. The move will allow users to link their digital wallets to UPI-enabled apps.
“It has been decided to enable UPI payments from/to full-KYC PPIs via third-party UPI applications. This will enable PPI holders to make/receive UPI payments through the mobile application of third-party UPI applications,” said RBI in a notification.
The RBI first proposed this change in April 2024, recognising the need to improve interoperability and enhance the user experience within the digital payments space. Third-party UPI apps include Google Pay, PhonePe and others, while PPIs include Paytm, PhonePe Wallet, Amazon Pay Wallet and others.
To transfer or receive money in a Paytm or Google Pay wallet, a user does not need to use the respective app’s interface. Money can be transferred to or from the wallet using any other UPI-enabled app.
“A PPI issuer shall enable holders of only its full-KYC PPIs to make UPI payments by linking its customer PPIs to its UPI handle,” said the notification. UPI transactions from PPI on the issuer’s application shall be authenticated using the customer’s existing PPI credentials.
Currently, UPI payments from a bank account can be carried out using the UPI application of that bank or of any third-party application provider. However, UPI payments from a PPI can only be carried out using the mobile application provided by the PPI issuer.
The decision is aimed at providing more flexibility to holders of PPIs such as gift cards, metro rail cards and digital wallets, among others.
“By bridging the gap between PPIs and UPI, this initiative enhances the accessibility and convenience of digital transactions for millions of users, enabling them to transact seamlessly beyond the confines of individual platforms,” said Dilip Modi, Founder & CEO of Spice Money. “For rural communities, where banking infrastructure can be limited, this integration represents a significant leap forward,” he said.
The enhanced interoperability between PPIs and UPI not only simplifies transactions but also instills greater trust and security through pre-approved authentication mechanisms, he added.