In a significant announcement, the Reserve Bank has decided to allow prepaid payment instruments (PP or popularly known as 'wallet') holders to make and receive UPI payments through third-party mobile applications.

Currently, UPI payments from/to a bank account can be carried out using the UPI application of that bank or of any third-party application provider. 

"However, UPI payments from/to a PPI can only be carried out using the mobile application provided by the PPI issuer," the central bank said in a circular.

As announced in the Statement on Development and Regulatory Policies dated April 05, 2024, it has been decided to enable UPI payments from/to full-KYC PPIs through third-party UPI applications. This will enable PPI holders to make/receive UPI payments through the mobile application of third-party UPI applications, the RBI noted.

PPI holders were previously on-boarded for UPI by their own PPI issuer only. 

However, as per the revised guidelines: "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," it said.

Such a transaction will, thus, be pre-approved before it reaches the UPI system.

A PPI issuer, in its capacity as a PSP, shall not on-board customers of any bank or any other PPI issuer, the regulator added.

A PPI issuer may also facilitate discovery of its full-KYC PPIs on third-party UPI mobile applications, who, in turn, shall enable such PPIs to be linked to their PSP handles. Such UPI transactions, from PPIs using third-party UPI applications, shall be authenticated using the UPI credentials.