RBI Allows UPI Payments for Prepaid Wallets via Third-Party Apps
The Reserve Bank of India (RBI) has introduced a major policy change to foster greater interoperability and convenience in the digital payments ecosystem. The new framework allows holders of Prepaid Payment Instruments (PPIs) to access the Unified Payments Interface (UPI) through third-party applications, a move set to simplify transactions and enhance user experience.
Enhanced Interoperability in UPI Payments
Previously, UPI payments could be made from or to a bank account using the UPI application provided by the bank or a third-party app. However, payments involving PPIs were limited to the mobile application offered by the PPI issuer. The RBI’s recent announcement removes this limitation, enabling full-KYC PPI holders to transact using third-party UPI apps, such as PhonePe, Google Pay, and Paytm.
This change, first outlined in the Statement on Development and Regulatory Policies dated April 5, 2024, aims to integrate PPIs seamlessly into the broader UPI ecosystem.
Key Features of the New Framework
- Full-KYC PPI Integration with UPI:
- Only full-KYC PPIs will be eligible for this interoperability.
- Users can link their PPIs to their UPI handle for transactions.
- Pre-Approval Authentication:
- UPI transactions via PPI on the issuer’s application will be authenticated using the customer’s existing PPI credentials.
- This ensures a pre-approved transaction mechanism before it reaches the UPI system.
- Third-Party App Access:
- PPI issuers can enable the discovery of their full-KYC PPIs on third-party UPI apps.
- These third-party apps will authenticate UPI transactions using UPI credentials.
- Restrictions on Onboarding:
- PPI issuers, acting as Payment Service Providers (PSPs), cannot onboard customers of other banks or PPI issuers.
Benefits of the Policy Change
This policy is expected to bring significant benefits to both consumers and the digital payments ecosystem:
1. Convenience for Users:
- PPI holders can now make UPI payments directly through popular third-party apps, eliminating the need to use issuer-specific applications.
2. Encouragement of Competition:
- Third-party UPI applications will compete to provide better services, fostering innovation in the sector.
3. Enhanced Role of Prepaid Wallets:
- This change strengthens the position of PPIs in India’s digital economy by integrating them more deeply with the UPI system.
4. Streamlined Payment Experience:
- Users will experience seamless transactions across wallets and banking systems, promoting greater adoption of digital payments.
Importance of the Update
1. Boost to Digital Payments:
With UPI transactions already witnessing significant growth, this policy is likely to accelerate adoption by making prepaid wallets more versatile.
2. Support for a Cashless Economy:
- By increasing the utility of PPIs, the RBI is furthering its goal of reducing reliance on cash transactions.
3. Global Benchmarking:
- Enhanced interoperability aligns India’s payments ecosystem with global best practices, setting a standard for digital payment innovations.
The RBI’s decision to enable UPI payments for PPIs through third-party applications is a progressive step toward enhancing interoperability and user convenience. By integrating prepaid wallets more effectively into the UPI ecosystem, the move is poised to drive competition, spur innovation, and solidify India’s position as a global leader in digital payments. This policy not only benefits consumers but also promotes the growth of the digital economy in India.
