On December 27, 2024, the Reserve Bank of India (“RBI”) amended the Master Directions on Prepaid Payment Instruments (“PPIs”) issued on August 27, 2021 (“PPI Directions”), to allow the linkage of PPIs with UPI handles on mobile applications (“3P Apps”) operated by third-party application providers (“TPAP”) to enable access to the Unified Payment Interface (“UPI”) ecosystem.

The amendments align the PPI Directions with the policy measures laid down by the RBI in their ‘Statement on Development and Regulatory Policies’ (“Statement”) issued on April 5, 2024. The RBI acknowledged that PPIs can be used to undertake UPI transactions only by using the application that is provided by the PPI issuer itself. Accordingly, the Statement proposed to address the above limitation by permitting the linking of PPIs through 3P Apps operated and offered by TPAPs. The allowance was proposed to provide higher flexibility to PPI holders to undertake UPI transactions.

1. Changes in relation to transactions on application of the PPI issuer:

• PPI issuers can enable its full-KYC PPI holders to make payments through the PPI using the UPI ecosystem by linking such holders’ PPIs to the UPI handle of the PPI issuer, which is accessible from the mobile application of the PPI issuer.
• UPI transactions undertaken by such full-KYC PPI holders through the PPI issuer’s application must be authenticated using the PPI holder’s existing PPI credentials. This will ensure that the transaction is pre-approved at the PPI issuer’s end, before it is processed through the UPI ecosystem.
• The PPI issuers will be regarded as Payment Service Providers (PSP) in context of the UPI ecosystem. The PPI Directions prohibit the PPI issuers from on-boarding customers of any bank or a third-party PPI issuer, therefore limiting the scope of who can be on-boarded as customers of a particular PPI issuer.

2. Introduction of transactions on 3P Apps of TPAPs:

• PPI issuers are now permitted to facilitate discovery of its full-KYC PPIs on 3P Apps operated by TPAPs, i.e., mobile applications other than the one operated by the PPI issuer on its own.
• Such 3P Apps would enable the full-KYC PPIs to be linked to the UPI handles issued to the customers on the 3P Apps.
• UPI transactions undertaken through 3P Apps by use of the PPIs issued by a third-party PPI issuer must be authenticated using the UPI credentials of the concerned customer.

These amendments to the PPI Directions allow for a greater degree of interoperability between the PPI and UPI ecosystems. Holders of full-KYC compliant PPIs will now be able to link their PPIs to 3P Apps that enable access to the UPI ecosystem, similar to how customers can link bank accounts with 3P Apps of TPAPs, to make payments using UPI. Additionally, in relation to the access to the UPI ecosystem through PPIs, the amendments clarify the authentication related responsibility, while also reiterating that payments through the UPI ecosystem can be undertaken only from full-KYC PPIs.