The Reserve Bank of India (RBI) has decided to allow prepaid payment instruments (PPIs) to make unified payments interface (UPI) transactions via third-party mobile applications on Dec. 27, 2024.
The decision goes back to April 2024 when the RBI first outlined it in its Development and Regulatory Policies statement. It allowed users of full-KYC (Know Your Customer) PPIs to transfer and receive money via any third-party app. With the new rule in effect, PPI issuers are now required to enable UPI payments for full-KYC wallets through third-party UPI apps.
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A PPI is a financial product that allows users to store funds electronically for making payments. It can be in the form of mobile wallets, prepaid cards, or gift cards. Regulated by the RBI, PPIs enable cashless transactions for online shopping, bill payments, and person-to-person transfers, offering a convenient alternative to cash for everyday transactions in India.
According to Electronic Payments International, third-party apps will allow PPIs to be connected to their payment service provider (PSP) accounts. When making transactions from PPIs using these third-party UPI apps, users will need to authenticate the transaction using their UPI credentials.
UPI is a real-time payment system developed by the National Payments Corporation of India (NPCI) to enable instant, secure money transfers between bank accounts using smartphones.
Launched in 2016, UPI allows users to link multiple bank accounts to a single app, facilitating peer-to-peer and merchant transactions. Payments are made using a Virtual Payment Address (VPA), ensuring privacy and security.
UPI operates 24/7 and supports various apps like Google Pay, PhonePe, and Paytm. It has become widely popular due to its convenience, low fees, and widespread adoption, promoting digital payments and financial inclusion in India.
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For Google Pay and other similar third-party apps, this means that users will soon be able to link their PPIs such as mobile wallets or prepaid cards to their Google Pay account. When making payments using PPIs through Google Pay, users will need to authenticate the transaction with their UPI credentials such as a PIN or other authentication methods.
In simple terms, if you’re using Google Pay and want to make a payment through a PPI, you’ll have to verify it using your UPI details, ensuring an extra layer of security for transactions. This will make the process more seamless and secure while using digital wallets and payment instruments in Google Pay.