The Reserve Bank of India (RBI) has introduced a significant update to enhance the functionality of Unified Payments Interface (UPI) transactions. Announced on Friday, December 27, this move now permits prepaid payment instrument (PPI) holders to use third-party UPI applications for payments. This decision aims to simplify digital transactions and broaden the accessibility of PPIs for seamless financial operations.
Key Features of the New Policy
Under the updated guidelines, full-KYC (Know Your Customer) PPI holders can make or receive UPI payments using mobile apps of third-party UPI providers. Transactions will be authenticated using pre-existing PPI credentials and pre-approved before being processed through the UPI system.
Previously, UPI payments linked to bank accounts could be conducted using either the bank's UPI application or a third-party UPI app. However, payments from or to a PPI were restricted to the PPI issuer's own mobile app. This policy update removes such limitations, enabling interoperability across third-party UPI platforms.
Implementation Details
According to the RBI's release on April 5, 2024, the integration allows PPI issuers to link their customer wallets to UPI handles. Full-KYC PPI holders can now link their wallets to third-party UPI applications for secure transactions. Importantly, the authentication process remains robust, leveraging customers' existing credentials to ensure secure pre-approval of transactions.
The RBI clarified that PPI issuers, in their role as Payment Service Providers (PSPs), cannot onboard customers from other banks or PPI issuers. However, they can facilitate the discovery and linking of full-KYC wallets to third-party UPI handles.
What This Means for Users
Prepaid payment instruments (PPIs) like digital wallets and prepaid cards are financial tools allowing users to store funds for future transactions. With the new RBI guidelines, users can now utilize any third-party UPI app to access and manage their wallets.
For instance, users of Paytm or Google Pay wallets are no longer limited to these specific apps for transferring or receiving money. Instead, funds can be transacted through any third-party UPI platform, making digital payments more flexible and convenient.
Benefits of the Update
This progressive step by the RBI is expected to significantly boost the adoption of digital payments in India, offering consumers greater freedom and ease of use.
