What's changing?

The RBI's latest guidelines mean that if someone has a wallet like Paytm Wallet or PhonePe Wallet that has completed full KYC, one can link it to a third-party UPI app and use it to send/receive money via UPI. Here are key points to know:

Previous instructions: According to the RBI's previous instructions, e-wallet holders used to be on-boarded for UPI by their own digital wallet issuer only. Only that e-wallet issuer could link its customer wallets to the handle issued to it. The digital wallet issuer as a payment service provider (PSP) could onboard customers of any bank or any other e-wallet issuer.

Revised guidelines: Now, a digital wallet issuer will enable holders of only its full-KYC e-wallets to make UPI payments by linking its customer e-wallet to its UPI handle. UPI transactions from e-wallet on the issuer’s application will be authenticated using the customer’s existing digital wallet credentials. Such a transaction will, thus, be pre-approved before it reaches the UPI system. An e-wallet issuer, in its capacity as a payment service provider, will not on-board customers of any bank or any other e-wallet issuer.

Previous instructions: Previously, authentication used to be completed by the e-wallet holder as per existing wallet credentials. In other words, a transaction used to be pre-approved before it reaches the UPI.

Revised guidelines: The revised guidelines say a digital wallet issuer may also facilitate the discovery of its full-KYC e-wallets on third-party UPI mobile applications, who, in turn, will enable such digital wallets to be linked to their payment service providers (PSP) handles. Such UPI transactions, from digital wallets using third-party UPI applications, will be authenticated using the UPI credentials.

What stakeholders say?

Ankush Julka, COO at New Delhi-based digital payments provider Mufin Pay, says the move will brings greater flexibility and accessibility to India’s digital payments ecosystem, and will significantly impact how consumers use digital wallets. "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 apps," says Julka.

Additionally, UPI’s popularity and ease of use is likely to encourage more users to adopt digital wallets, particularly those who were previously concerned about compatibility with existing payment systems.

Julka says this gives a level playing field to companies. "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."

Third-Party Apps

Explained: What RBI's new UPI rules mean for linking e-wallets to 3rd-party apps