New RBI Rule Allows Use of PhonePe, Amazon Pay, and Other Wallets for Payments via Paytm and UPI Apps!!

Unified Payments Interface (UPI) and Digital Wallets have become essential to our daily transactions, thanks to platforms like Paytm, PhonePe, and Amazon. Whether it's settling bills at local stores, utility payments, or society maintenance charges, wallets facilitate various financial activities. However, a common inconvenience users face is the restriction on utilizing wallet money solely within the respective app or website provided by the Prepaid Payment Instrument (PPI) issuer. For instance, if you own a PhonePe wallet, you're confined to using its funds exclusively through PhonePe, unable to utilize them on other third-party UPI platforms. This constraint extends to prepaid cards as well.

To address this limitation, the Reserve Bank of India (RBI) has proposed a significant change, allowing the integration of prepaid payment instruments with third-party UPI applications.

According to RBI Governor Shaktikanta Das, announced on April 5, 2024, "To provide more flexibility to PPI holders, it is now proposed to permit linking of PPIs through third-party UPI applications. This will enable the PPI holders to make UPI payments like bank account holders."

So, what does this new rule mean for UPI users? Shivaji Thapliyal, Head of Research at Yes Securities India Ltd., explains that customers will gain the freedom to access their wallet money through any UPI app, irrespective of whether the wallet and UPI app are from different providers.

With these regulatory changes, PPI wallet holders will no longer be tethered solely to their wallet issuer. As Shravan Shetty, Managing Director at Primus Partners, points out, "Customers can now use their wallet balance seamlessly on other UPI-enabled apps, expanding its utility beyond the wallet’s platform."

To explain, Thapliyal offers an example: "Suppose you have a PhonePe Wallet with some outstanding balance. Now, you can access this balance through any third-party UPI app, eliminating the need to stick to the PhonePe app."

Essentially, this means that funds stored in wallets such as PhonePe, Amazon Pay, and Paytm can now be utilized across various third-party UPI applications.

Vinayak Goyal, Executive Director at AGS Transact Technologies Limited, highlights that the RBI's decision to link UPI with PPI specifically applies to open-loop PPIs, as they are accepted across multiple merchant platforms. This move is expected to accelerate the adoption of open-loop PPIs in the country, empowering users with features like expense tracking, budget management, and secure transactions, especially for smaller amounts.

Further guidelines from the central bank will provide clarity on the implementation of this new rule, anticipated to be released soon.