The Reserve Bank of India (RBI) has allowed users of prepaid payment instruments (PPI) to make and receive UPI payments through third-party mobile applications.

This will promote interoperability between mobile wallets and the UPI ecosystem.

The RBI, in a circular, said it has been decided to enable Unified Payments Interface (UPI) payments from/to full-KYC prepaid PPIs through third-party UPI applications.

Currently, UPI transactions on a bank account can be carried out using the UPI application of that bank or of any third-party application provider. However, UPI payments through a digital wallet called 'Prepaid Payment Instruments' can only be carried out using the mobile application provided by the PPI issuer.

"A PPI issuer shall enable holders of only its full-KYC PPIs to make UPI payments by linking its customer PPIs to its UPI handle. UPI transactions from PPI on the issuer's application shall be authenticated using the customer's existing PPI credentials," RBI said in the new circular.

Such a transaction will, thus, be pre-approved before it reaches the UPI system.

A PPI issuer, in its capacity as a payment system providers, should not on-board customers of any bank or any other PPI issuer, the RBI said.

The RBI's decision is aimed at providing more flexibility to holders of PPIs such as gift cards, metro rail cards and digital wallets, among others.

UPI is an instant real-time payment system developed by National Payments Corporation of India to facilitate inter-bank transactions through mobile phones.

PPIs are instruments that facilitate purchase of goods and services, conduct of financial services, and enable remittance facilities against the value stored therein.