What is the recent RBI proposal regarding UPI and prepaid payment instruments (PPIs)?

The RBI has proposed allowing prepaid payment instruments (PPIs) to be linked with third-party UPI applications

How will this proposal benefit UPI customers?

This proposal will allow customers to use their PPI wallets with any UPI app, providing more flexibility and convenience in making payments across different platforms.

What transaction limit has the RBI set for PPI interoperability with UPI?

The RBI has set a transaction limit of ₹10,000 per month for individual users for PPI interoperability with UPI.

How does the RBI's proposal promote financial inclusion?

By integrating PPIs with UPI, the proposal allows migrant workers and urban poor, who rely on PPIs, to access a widespread UPI payment network, thus enhancing their financial inclusion.

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Important Changes to UPI Rules: What You Need to Know

Q: What limitations did PPI users face before this proposal?

PPI users could only make UPI payments using the application provided by the same PPI issuer.

Diya Vig

Author

Updated: 28-01-2025 at 6:08 AM

Important Changes to UPI Rules: What You Need to Know

The Reserve Bank of India (RBI) has proposed allowing prepaid payment devices to make payments using third-party UPI applications. What does this mean for thousands of UPI customers?

If you use Paytm, PhonePe, or Amazon Pay, you likely use a prepaid payment instrument (PPI). Customers have often complained that they cannot use money deposited in these wallets to make payments on other companies' platforms or scanners.

Read below this article to explore more about the RBI's recent UPI rule change.

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RBI’s Proposal For PPI-UPI Integration

To address this, the RBI has proposed allowing PPIs to be linked to third-party UPI applications. But what does this mean for customers?

This means that payments are possible on any app. The proposal allows granting permission to link PPIs through third-party UPI apps to provide more flexibility to PPI holders. This would enable PPI users to make UPI payments like a bank account.

With this rule in effect, customers can use their wallet with any UPI app, even if the wallet and UPI app are from different companies. The RBI says that until now, wallets could only be used to make UPI payments using the application provided by the same PPI issuer.

For example, if you use a PhonePe wallet, you have to use PhonePe to make payments from that wallet. You cannot use your wallet money to make payments using another third-party UPI application.

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Understanding Prepaid Payment Instruments

Prepaid payment instruments allow users to store money in digital or physical formats to make hassle-free payments without needing bank accounts or credit cards.

Some common examples include:

Mobile Wallets: Paytm, PhonePe, Google Pay, etc.
Prepaid Cards: Gift cards and meal cards for employees
Paper Vouchers: Used extensively in government schemes

As per RBI data, the total outstanding PPI transactions touched ₹6.27 lakh crore at the end of May 2022 through 57 crore digital wallets operational in the country.

But most mobile wallet players have developed proprietary payment acceptance networks outside of UPI channels, which prevent money transfers between different apps, limiting use cases for consumers.

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Why The RBI Wants UPI-PPI Integration

By allowing PPI apps to plug into the UPI highway, the RBI aims to drive the following key outcomes:

Interoperability: Users can pay via UPI across merchant apps and platforms through PPIs.
Innovation: Fintech firms can build value-added services by combining the strengths of PPIs and UPIs.
Financial Inclusion: Migrant workers and urban poor relying on PPIs get access to a UPI payment network spanning 200+ banks.
Consumer Convenience: Switch easily between prepaid wallets, UPI apps, and bank accounts for specific use cases.
Standardisation: Aligned customer experience for PPI and UPI payments driving adoption

The RBI emphasised that PPI interoperability with UPI would be allowed only for small-value transactions up to ₹10,000 per month for an individual user.

This safeguards existing PPI business models while harnessing the network effects of UPI.

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Potential Impact On Digital Payments Growth In India

With over 300 million smartphone users still dependent on cash for daily transactions, policy reforms that spur digital payment innovation through interoperability will accelerate India’s transition towards a “cashless” economy.

Easy pay features combined with attractive loyalty programmes can drive rapid merchant acquisition across underpenetrated user segments from small towns and cities.

As more startups leverage UPI connectivity, enhanced competition is also expected to make transaction charges more affordable, thereby boosting adoption at local vendors.

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Way Forward

Industry experts have welcomed the RBI's progressive consultative document to open doors for a complementary union between the PPI and UPI ecosystems. Through this change, users can now make payments through third-party applications while using the wallet balance from multiple payment gateways, which expands the wallet functionality as well as improves the scope and range of online transactions.

For further queries, readers can visit the RBI’s official website.

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