RBI Proposes Direct UPI Payments From PPI Wallets

The Reserve Bank of India (RBI) on Friday (May 5) proposed allowing linking of prepaid payment instruments like digital wallets through third-party Unified Payments Interface (UPI) applications.

In its statement on development and regulatory policies after the meeting of the Monetary Policy Committee (MPC), the central bank said, “At present, UPI payments from bank accounts can be made by linking a bank account through the UPI App of the bank or using any third-party UPI application. However, the same facility is not available for PPIs. PPIs can currently be used to make UPI transactions only by using the application provided by the PPI issuer.”

In order to provide more flexibility to PPI holders, the RBI proposed permitting linking of PPIs through third-party UPI applications. “This will enable the PPI holders to make UPI payments like bank account holders. Instructions in this regard will be issued shortly,” the statement said.

The move is likely to benefit fintech startups like Paytm, PhonePe, Freecharge, MobiKwik which offer digital wallets. 

The development comes at a time when the number of UPI transactions is touching new highs almost every month. The number of UPI transactions surged 55% to 13.44 Bn in March 2024 from 8.7 Bn in the year-ago month. 

It is pertinent to note that the National Payments Corporation of India (NPCI) has set its eyes on achieving 100 Bn UPI transactions a month in the near future.

As of now, the UPI landscape in India continues to be dominated by PhonePe and Google Pay, which cumulatively commanded an over 80% share in the UPI space in 2023. 

Meanwhile, the RBI today also proposed allowing cash deposits through the UPI.

“The facility of cash deposit is presently available only through use of debit cards. Given the popularity and acceptance of UPI, as also the benefits seen from the availability of UPI for card-less cash withdrawal at ATMs, it is now proposed to facilitate cash deposit facility through use of UPI,” the central bank said.

To make the retail central bank digital currency (CBDC) available to more users, the RBI proposed enabling non-bank payment system operators to offer CBDC wallets.

“CBDC pilots in the Retail and Wholesale segments are underway with more use-cases and more participating banks. Continuing with this approach, it is proposed to make CBDC-Retail accessible to a broader segment of users in a sustained manner, by enabling non-bank payment system operators to offer CBDC wallets,” the statement said.

The central bank said that the move is expected to enhance access and expand choices available to users, apart from testing the resiliency of the CBDC platform to handle multi-channel transactions. 

Earlier this year, the RBI also said that it will enable additional functionalities such as offline capability and programmability for CBDC retail payments.

The RBI today also proposed introduction of a dedicated platform for retail investors to allow them to participate in government securities (G-Secs) or government bonds market.