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Previously, PPI holders were limited to using UPI services through apps provided by their wallet issuers. With this policy update, full-KYC PPI holders can now link their wallets to third-party UPI platforms, such as popular payment apps, greatly expanding their transaction options.
As per the RBI circular, “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. UPI transactions from PPI on the issuer’s application shall be authenticated using the customer’s existing PPI credentials,”
“Such a transaction will, thus, be pre-approved before it reaches the UPI system. A PPI issuer, in its capacity as a PSP, shall not on-board customers of any bank or any other PPI issuer,” it added.
A prepaid payment instrument (PPI) is a financial tool that allows users to store funds on a card or digital wallet for future transactions.
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The RBI first proposed this change in April 2024, citing the need for improved interoperability in the digital payments space.
As per the new rules, PPI-linked UPI transactions on third-party apps will be authenticated using UPI credentials, ensuring the same level of security and ease currently available to bank account holders.
“A PPI issuer may also facilitate discovery of its full-KYC PPIs on third-party UPI mobile applications, who, in turn shall enable such PPIs to be linked to their PSP handle/s. Such UPI transactions, from PPIs using third party UPI applications, shall be authenticated using the UPI credentials,” the statement said.
This development is expected to enhance the appeal of digital wallets by bridging the gap between PPIs and traditional bank accounts. Wallet users will now have access to a broader ecosystem for transactions, making everyday payments simpler and more convenient.
For PPI issuers, this opens up opportunities to attract more users, as customers gain flexibility in choosing platforms for their transactions.
