The Reserve Bank of India (RBI) has made a significant change to the Unified Payments Interface (UPI) system by enabling UPI payments between verified digital wallets, also known as Prepaid Payment Instruments (PPIs), and third-party UPI applications. This new directive will allow users of digital wallets to make and receive UPI payments via any third-party UPI app, rather than being limited to the wallet’s own mobile application. The move is aimed at enhancing interoperability within the payment ecosystem and offering more convenience to users, as they can now perform transactions without being tied to a specific wallet issuer’s app.

Previously, UPI transactions were confined to bank accounts and could be carried out using the bank’s app or any third-party UPI application. However, transactions from digital wallets, which are also a form of electronic wallet called Prepaid Payment Instruments (PPIs), could only be performed through the specific app provided by the wallet issuer. With the RBI's new decision, users who hold a full-KYC-compliant digital wallet can now link their wallet to a third-party UPI application and make or receive payments, improving access and flexibility for consumers.

Under the updated guidelines, the issuer of the PPI must ensure that wallet holders are fully KYC-compliant before allowing them to link their wallet to a UPI handle. When a user initiates a UPI transaction using a third-party app, the wallet transaction will be pre-approved using the wallet’s credentials and then authenticated through the UPI system. Additionally, the new system allows PPI issuers to make their wallets discoverable on third-party UPI applications, further facilitating smooth transactions for customers. The changes are expected to streamline UPI transactions and give users a wider range of payment options.