The Reserve Bank of India (RBI) unveiled a significant proposal on Friday (May 5) that could revolutionize the digital payments landscape in the country. In a move aimed at enhancing the accessibility and convenience of prepaid payment instruments (PPIs) such as digital wallets, the central bank suggested allowing their linkage through third-party Unified Payments Interface (UPI) applications.

Currently, while users can seamlessly conduct UPI transactions directly from their bank accounts via either their bank’s UPI app or third-party UPI applications, PPI holders face a more restricted process. They are limited to using the specific UPI application provided by the PPI issuer. This restriction is set to be lifted if the RBI’s proposal comes to fruition.

By enabling PPI holders to link their instruments through third-party UPI applications, the RBI aims to democratize UPI payments, empowering PPI users with the same level of convenience enjoyed by bank account holders. “This will enable the PPI holders to make UPI payments like bank account holders. Instructions in this regard will be issued shortly,” the RBI stated in its announcement.

This development is poised to bring a host of benefits to the fintech ecosystem, particularly benefiting startups such as Paytm, PhonePe, Freecharge, and MobiKwik, which have been instrumental in popularizing digital wallets in India.

Importantly, the RBI’s move comes against the backdrop of a surging trend in UPI transactions. Data reveals that UPI transactions have been witnessing remarkable growth, with a staggering 55% increase recorded in March 2024 compared to the same period the previous year. During March 2024 alone, the total UPI transactions surged to 13.44 billion from 8.7 billion in the corresponding month in the previous year.

This surge in UPI transactions aligns with the ambitious targets set by the National Payments Corporation of India (NPCI), the organization responsible for overseeing UPI transactions in the country. NPCI has set its sights on achieving a monumental milestone of 100 billion UPI transactions per month in the near future, underscoring the rapid pace of digital payments adoption in India.