RBI allows UPI access for prepaid payment instruments via third party applications: Here's what it means

The Reserve Bank of India (RBI) on Friday, December 27, allowed prepaid payment instrument holders to make and receive unified payments interface (UPI) payments through third-party mobile applications. The central bank said in a circular today that it has decided to enable UPI payments from/to full-KYC prepaid payment instruments (PPIs) through third-party UPI apps.

“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,” said the RBI in its circular today.

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RBI allows UPI for prepaid payment via third-party apps: What it means

Such a transaction will be pre-approved before it reaches the UPI system. A PPI issuer, as a payment system provider, should not onboard customers of any bank or other PPI issuer. The RBI aims to provide more flexibility to PPI holders such as gift cards, metro rail cards, and digital wallets. PPI holders can make or receive UPI payments through third-party mobile applications.

The central bank initially announced this move in April. Earlier, UPI payments from or to a bank account could be carried out using the UPI application of that bank or any third-party application provider. However, UPI payments from or to a PPI could only be carried out using the mobile application provided by the PPI issuer. 

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To provide greater flexibility to PPI holders, RBI proposed permitting the linking of PPIs through third-party UPI applications. This provision has enabled PPI holders to make UPI payments like bank account holders.

UPI, India's leading digital payment platform, is an instant real-time payment system developed by the National Payments Corporation of India (NPCI) to facilitate inter-bank transactions through mobile phones. PPIs are instruments that facilitate the purchase of goods and services, the conduct of financial services, and remittance facilities against the value stored therein.

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