RBI allows interoperability between PPIs like wallets for UPI payments

The Reserve Bank of India (RBI) on Friday allowed interoperability of prepaid payment instruments (PPIs) for Unified Payments Interface (UPI) transactions through third party application providers (TPAPs).

 

Currently, UPI payments are interoperable such that a user can use any TPAP to transfer funds. However, transactions between PPIs, such as digital wallets, can only be conducted within the payments system provided by the wallet issuer.

 

“It has been decided to enable UPI payments from/to full-KYC (know your customer) PPIs through third-party UPI applications. This will enable PPI holders to make/receive UPI payments through the mobile application of third-party UPI applications,” the RBI said in a statement.

 

 

Essentially, a user can transfer or receive funds through UPI in their PPI wallet using services from applications that have not issued the payment instrument, making it interoperable. Earlier, transactions between two wallets could only be conducted if both the parties, sender and receiver of payments, were using the same TPAP.

 

Under the revised instructions, the RBI has said that issuers of PPIs would enable their full-KYC users to make UPI payments by linking such payment instruments to respective UPI handles. However, PPI issuers acting in the capacity of a payment service provider (PSP) will not onboard customers of any bank or any other PPI issuer. 

 

Full-KYC PPI users can now be discovered on third party UPI applications such as PhonePe, Google Pay, and Paytm, facilitated by issuers of these payment instruments, which could be banks or non-banks. These TPAPs can enable the linkage between PPIs and their PSP UPI handles.

 

“Such UPI transactions, from PPIs using third party UPI applications, shall be authenticated using the UPI credentials,” the RBI added.

 

PPIs are instruments that facilitate purchase of goods and services, financial services, and remittances, among other use cases, against the value loaded onto them via payment applications. At present, there are over 1.14 billion PPI wallets issued by banks and non-banks cumulatively, RBI data shows.

 

The RBI classifies PPIs into two categories — Small PPIs and Full-KYC PPIs. The latest notification from the regulator concerns full-KYC PPIs, which are issued by banks and non-banks only after completing requisite KYC of the PPI holder.

 

With the latest guidelines, users who choose to link their PPIs to other TPAPs will have the option to pick multiple applications for their transactions.

 

“The ability for users to link full-KYC PPIs to third-party UPI apps means customers can choose from more platforms for their transactions. This flexibility is important for improving customer satisfaction and increasing engagement with digital wallets,” said Ankush Julka, chief operating officer (COO) at Mufin Pay, a PPI-licensed entity.

 

Players added that interoperability would ease transaction experience for rural users.

 

“This development will allow PPI users, including those relying on gift cards, digital wallets, or transit cards, to participate in the digital payment ecosystem with greater ease. The enhanced interoperability between PPIs and UPI not only simplifies transactions but also instills greater trust and security through pre-approved authentication mechanisms,” said Dilip Modi, founder and chief executive officer (CEO), Spice Money.

 

PhonePe, MobiKwik, and Ola are the top three non-bank PPI players, whereas Paytm Payments Bank, Airtel Payments Bank, and HDFC Bank are the largest PPI players that are banks.