RBI Expands UPI Payment System to Include Digital Wallets and Prepaid Cards

The Reserve Bank of India (RBI) has announced an expansion of the Unified Payments Interface (UPI) system that will enable users of prepaid payment instruments (PPIs) to conduct UPI transactions through third-party mobile applications. The new policy encompasses gift cards, metro rail cards, and digital wallets, building upon India’s growing digital public infrastructure.

Under the new framework, holders of full-KYC-compliant PPIs will be able to make and receive UPI payments via third-party apps. The authentication process for these transactions will use existing PPI credentials when conducted through the issuer’s application, with transactions being pre-approved before entering the UPI system. The approach supports India’s broader efforts to strengthen digital payment security, similar to recent initiatives like WhatsApp Pay’s enhanced identity verification requirements.

The RBI has established specific guidelines for implementation, stipulating that PPI issuers must enable UPI payments only for their full-KYC PPI holders by linking customer PPIs to their UPI handles. Additionally, PPI issuers operating as payment system facilitators are prohibited from onboarding customers who belong to banks or other PPI issuers.

The expansion represents a significant advancement in India’s digital payment infrastructure, which has seen substantial growth since UPI’s introduction in 2016. The system has traditionally been linked primarily to bank accounts, with this new policy extending functionality to a broader range of payment instruments. The changes come as part of India’s larger digital transformation efforts, which have already saved an estimated $40 billion through digital benefit systems and fraud prevention measures.

“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,” the RBI stated in its official circular. “UPI transactions from PPI on the issuer’s application shall be authenticated using the customer’s existing PPI credentials. Such a transaction will, thus, be pre-approved before it reaches the UPI system.”

Sources: Times of India, The Economic Times, Rediff