The Reserve Bank of India (RBI) has enabled prepaid payment instruments (PPIs) to make unified payments interface (UPI) transactions via third-party mobile applications, a concept that may sound arcane on first glance, but one that could speed up the money transfer process in India.

PPIs are financial tools that allow users to store funds for future transactions on cards or digital wallets. Until recently, UPI payments linked to PPIs could only be carried out using the mobile application of the PPI issuer.

This change wasn’t unexpected. In fact it was first outlined in RBI’s statement on Development and Regulatory Policies in April 2024, stating that users of full-KYC (know your customer)-compliant PPIs can use any third-party app’s interface to transfer and receive money in their wallets. With the new rules now in place, PPI issuers are permitted to facilitate the discovery of their full-KYC PPIs on third-party UPI mobile applications.

As news resource Electronic Payments International notes, these third-party applications will enable PPIs to be linked to their payment service provider (PSP) handles. Transactions made from PPIs using third-party UPI applications will require authentication with UPI credentials.

As for what this means in practice, Indian news resource Mint explains that the UPI is a sort of bank-to-bank money transfer, where the interface is a mobile application such as Google Pay.

Users can transfer money across platforms via a mobile number and QR code. PPIs are mobile wallets which have preloaded money. This money can be transferred to another person who is also using the mobile wallet by the same PPI provider.

But a PPI is not a UPI; the money does not move from one bank account to another. To move money from one mobile wallet to another requires interoperability, which the RBI has now allowed with its latest rollout.

In other words, by integrating PPIs with UPI, the RBI has made it easier for users to link their digital wallets to UPI-enabled apps. The latest change means that users of PPIs will now be allowed to use third party apps as well as the UPI functionality provided by the PPI provider.

While much of this was in the April statement, the latest move on 27 December was apparently a follow-up action where the RBI instructed all prepaid payment instrument (PPI) issuers to enable UPI payments from and to full-KYC PPIs through third-party UPI applications.

So is this a positive move for customer – and could it be a boost to the digital payment ecosystem in India? Almost certainly, because the new ruling makes PPI instruments easy to use for UPI transactions. In fact Mint says UPI is an essential payment mode for everyday usage of more than 500 million Indians.