PPI interoperability: How RBI’s new UPI rule set to ease digital payments? An explainer

The Reserve Financial institution of India (RBI) not too long ago allowed the customers of pay as you go fee devices (PPIs) to access UPI services via third party applications. That is seen as a commendable transfer which can give an enormous increase to the digital fee ecosystem in India.

As a way to perceive this, allow us to first perceive the important thing variations between UPI and mobile wallets.

UPI Vs PPIs

UPI stands for unified funds interface, which allows prospects to switch cash digitally by advantage of being linked to the checking account. Successfully, it’s a bank-to-bank cash switch, and the interface is a cellular utility equivalent to Google Pay or BHIM.

Since these functions are linked on to the financial institution, customers can switch cash throughout platforms by way of a cellular quantity and QR code.

However, prepaid payment instruments are cellular wallets which, because the title suggests, have pre-loaded cash and may switch it to a different one that can also be utilizing the cellular pockets by the identical PPI supplier.

Nevertheless, it has restricted functionality as a result of it’s not UPI, and the cash doesn’t transfer from one checking account to a different.

So, to maneuver cash from one wallet to another requires what is named ‘interoperability’ which the RBI has now allowed with its newest rollout.

“One of many most important challenges with PPIs has been their restricted compatibility with mainstream banking providers and fee platforms. By integrating PPIs with UPI, the RBI has addressed this situation, making it simpler for customers to hyperlink their digital wallets to UPI-enabled apps,” says Ankush Julka, COO at Mufin Pay.

Present ecosystem

Apparently, some in style pay as you go fee devices (PPI) suppliers nonetheless present entry to UPI. For example, PhonePe is linked to UPI by way of BHIM.

Equally, MobiKwik additionally permits interoperability by way of its UPI performance known as Pocket UPI. This implies one can use his MobiKwik pockets to switch cash to PhonePe through the use of former’s UPI performance known as Pocket UPI.

However as one can perceive this entry is restricted to the UPI app provied by the PPI supplier solely.

Third occasion UPI apps

With the newest change being rolled out, nevertheless, the customers of PPIs will now be allowed to make use of third occasion apps as effectively and never solely the UPI performance offered by the PPI supplier solely.

For example, MobiKwik prospects can use the UPI performance of any third-party app and never solely Pocket UPI. Equally, PhonePe prospects will now be capable to use Google Pay as effectively and never solely BHIM for the UPI funds.

It’s value recalling that the banking regulator had introduced about this plan to introduce interoperability by way of its assertion in April this 12 months.

“At current, UPI funds from financial institution accounts might be made by linking a checking account by the UPI App of the financial institution or utilizing any third-party UPI utility. Nevertheless, the identical facility shouldn’t be out there for PPIs. PPIs can at the moment be used to make UPI transactions solely through the use of the appliance offered by the PPI issuer. To supply extra flexibility to PPI holders, it’s now proposed to allow linking of PPIs by third-party UPI functions. This can allow the PPI holders to make UPI funds like checking account holders,” reads the RBI assertion dated April 5, 2024.

So, the newest transfer on Dec 27 was a follow-up motion the place the RBI instructed all pay as you go fee instrument (PPI) issuers to allow UPI funds from / to full-KYC PPIs by third-party UPI functions.

“UPI’s reputation and ease of use will seemingly encourage extra customers to undertake digital wallets, notably those that have been beforehand involved about compatibility with current fee techniques,” provides Julka.