RBI permits UPI access for prepaid payment instruments through 3rd party apps

The Reserve Bank of India (RBI) has announced that holders of full-KYC Prepaid Payment Instruments (PPIs) can now make and receive Unified Payments Interface (UPI) payments using third-party mobile applications.

Previously, PPI users could only use the mobile apps provided by their PPI issuers for UPI transactions. The move is expected to boost digital payments and offer more convenience to users across the country.

What has changed?  

In a circular released on Friday, the RBI stated that full-KYC PPI holders will be allowed to link their wallets to third-party UPI handles.

This will enable customers to conduct transactions authenticated by their existing PPI credentials. Such transactions will be “pre-approved” before reaching the UPI system, ensuring a secure payment experience. 

“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.”

Impact on users

With this change, users of gift cards, metro rail cards, and digital wallets, among other PPIs, gain broader access to UPI transactions. They can now use popular third-party UPI apps—such as PhonePe, Google Pay, Paytm, and others—to make instant, real-time payments.  

1. Greater choice: Allows PPI holders to select any UPI application they prefer, rather than being restricted to the issuer’s app.  
2. Expanded usage: Encourages more frequent use of digital transactions, especially for small-value payments.  
3. Faster adoption: RBI Governor Shaktikanta Das has noted that this development could promote wider acceptance of digital payments across India.

Currently, PhonePe commands nearly 50% of the UPI market, while Google Pay holds about 37%, and Paytm 7%. New entrants like CRED, Navi, and Flipkart’s Super.money have also shown growth in recent months. By allowing PPI wallets to link with these apps, RBI hopes to drive competition and innovation in India’s digital payment landscape.

Background on UPI and PPIs

1. UPI (Unified Payments Interface): Developed by the National Payments Corporation of India (NPCI) to facilitate instant inter-bank transactions through mobile phones.  
2. PPIs (Prepaid Payment Instruments): Enable users to store money for purchases of goods and services, as well as to avail financial services or make remittances. Examples include prepaid wallets, gift cards, and transit cards.