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RBI Permits UPI Payments Through Third-Party Apps for PPI Holders

The Reserve Bank of India (RBI) has approved full-KYC Prepaid Payment Instruments (PPIs) holders to make and receive UPI payments through third-party applications such as Google Pay and PhonePe. This move, aimed at improving payment interoperability, is expected to enhance digital payment adoption across the country

Enhancing Interoperability with UPI

Under the new framework, holders of fully KYC-compliant PPIs—such as digital wallets, gift cards, and metro rail cards—can now link their PPIs to UPI handles. This integration allows users to make and receive payments using popular third-party applications like Google Pay, PhonePe, and others. Transactions will be authenticated using the user’s existing PPI credentials, ensuring a secure and seamless process.

Previously, UPI payments involving PPIs were restricted to issuer-specific platforms, limiting user flexibility. The new system eliminates this dependency and integrates PPIs with mainstream UPI apps, making digital transactions more convenient for users.

Key Impacts of the Directive

Improved User Experience: The integration allows users to make various payments, such as online shopping, bill payments, and peer-to-peer transfers, through their PPIs using third-party UPI apps. This simplifies and streamlines the payment process.

Addressing Limitations: This move allows PPIs to function on popular UPI platforms, resolving compatibility issues that previously limited their versatility for everyday transactions.

Encouraging Digital Payment Growth: The RBI’s decision aligns with its Payments Vision 2025 and aims to expand the reach of UPI, encouraging wider adoption of digital payments across various sectors.

Past Context and Future Implications

Before this change, UPI payments were limited to transactions involving bank accounts or PPIs through the issuer’s own mobile apps. This restricted the flexibility of users who wished to use their PPIs for UPI payments. By allowing full-KYC PPIs to interact with third-party UPI applications, the RBI is taking a significant step toward a more unified and inclusive digital payment ecosystem.

This move is expected to increase financial inclusion and ease of use, benefiting both consumers and businesses. As a result, it paves the way for further innovation in the digital payments space, driving the adoption of cashless transactions.