RBI Allows Full-KYC Prepaid Wallets to Make UPI Payments via Third-Party Apps

The Reserve Bank of India (RBI) has announced that Prepaid Payment Instruments (PPIs) with full KYC can now make UPI payments via third-party apps. 

Previously, users could only access UPI services through apps provided by their wallet providers.

This change, outlined in a circular issued on December 27, enables full-KYC PPI holders to link their wallets to their UPI handles and make payments through existing PPI credentials. 

These transactions will be pre-approved before reaching the UPI system, but PPI issuers cannot onboard customers from other banks or PPIs.

Additionally, PPI issuers can allow third-party UPI apps to discover and link full-KYC PPIs to their Payment Service Provider (PSP) handles, with transactions authenticated using UPI credentials. 

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This change follows the RBI's earlier proposal to allow the linking of digital wallets to third-party UPI apps.

Earlier in 2023, the RBI also increased the transaction cap for UPI 123Pay to INR 10,000 from INR 5,000 and raised the per-transaction limit for UPI Lite to INR 1,000 from INR 500.

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UPI123Pay, introduced in 2022, enables feature phone users to access UPI services without an internet connection in 12 languages. 

UPI transactions declined by 6.6% month-on-month (MoM) in November, dropping to 15.48 billion from 16.58 billion in October, which saw a 10% MoM increase. 

Market leaders PhonePe and google Pay currently hold 48.4% and 37.3% of the market share, respectively.

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