Mint Explainer: How UPI access will make digital wallet users' life easier

So far, UPI payments from and to a PPI could only be made through the PPI issuer's app. On the other hand, payments to and from a bank account could be carried out using the bank's UPI app or any third-party app—a facility that is now being extended to PPI issuers.

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A PPI issuer may “facilitate the discovery of its full-KYC PPIs on third-party UPI mobile applications, which, in turn, shall enable such PPIs to be linked to their PSP (payment service provider) handle/s", the central bank notified, adding that such transactions from PPIs, using third-party UPI apps, will be authenticated using UPI credentials.

Mint explains:

What are PPIs?

PPIs are payment tools such as cards and wallets that allow users to make payments, access financial services, and transfer funds from prepaid or pre-stored money. Banks and non-banks provide these PPIs after completing know-your-customer (KYC) verification. Examples include wallets offered by PSPs such as PhonePe, Cred, Mobikwik and Amazon Pay, among others.

What are third-party applications?

Third-party application providers (TPAPs) register with the National Payments Corporation of India and develop apps that enable UPI transactions, such as payments and fund transfers to and from customers’ bank accounts, using linked UPI handles. TPAPs include all UPI payment platforms such as Paytm, PhonePe, BharatPe, Google Pay, Amazon Pay, and MobiKwik.

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What is the rationale behind the move?

The initiative aims to incorporate PPIs into the UPI ecosystem to improve interoperability between various players. This is expected to improve the accessibility, flexibility, and convenience of digital transactions across and without the confines of multiple individual platforms.

“One of the main challenges with PPIs has been their limited compatibility with mainstream banking services and payment platforms. By integrating PPIs with UPI, the RBI has addressed this issue, making it easier for users to link their digital wallets to UPI-enabled applications," said Ankush Julka, chief operating officer, MufinPay.

How will this help PPI users?

The move is expected to expand the scope of PPIs and increase their use cases, thus improving convenience, engagement with wallets, and overall customer experience. Users can now choose from more platforms and use their PPIs to make UPI payments, whether for paying bills, shopping online, or transferring funds, allowing for wider adoption of digital payments.

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“For rural communities, where banking infrastructure can be limited, this integration represents a significant leap forward. This development will allow PPI users—including those relying on gift cards, digital wallets, or transit cards—to participate in the digital payment ecosystem with greater ease," said Dilip Modi, founder and chief executive, Spice Money.

He added that the interoperability would simplify transactions and instil greater trust and security through pre-approved authentication mechanisms, which is critical for rural users and first-time digital transaction adopters.

How will this benefit PPI issuers?

Experts believe that the UPI’s popularity and ease of use are also likely to encourage more users to adopt digital wallets, particularly those who were previously concerned about compatibility with existing payment systems.

“From a strategic perspective, this development helps us attract new users and improve our services. It also levels the playing field for PPI issuers, allowing us to compete more effectively with traditional financial institutions," Julka said, adding that it supports innovation and growth of digital wallets in the payments space.