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PPI Interoperability

A roadmap to seamless payments infrastructure

Authors: Ashish Punjabi and Sadanand Ojha

A year ago, the Reserve Bank of India (RBI) issued its revised Master Directions on Issuance and Operation of Prepaid Payment Instruments (PPIs). The directions included significant changes to Know Your Customer (KYC) requirements for existing and new PPIs issued to customers. Over the course of one year, the PPI industry has made several changes to its business models to comply with the regulatory requirements.

With a vision to enable PPIs to become an integral part of the larger financial services ecosystem, on 16 October 2018, the RBI issued its much-anticipated directions on interoperability for PPIs. Under this new regime of interoperable prepaid instruments, the RBI has enabled wallet users to seamlessly transfer funds from one wallet to another (of another issuer) and from their wallets to bank accounts through the Unified Payments Interface (UPI) platform. The RBI has also provided a thrust to non-bank PPI issuers by enabling them to participate directly as a member/associate member of card network associations for issuance and operation of cards. This move is expected to increase the overall acceptance of non-bank PPI player

Key regulation highlights

Implications for non-bank PPI players

Interoperability is optional

As the regulation is not mandatory, interoperability adoption will be considered by players after taking into account the impact on their business model.

Participate as an associate member of a card network

Will get Bank Identification Number (BIN) by network for issuance and operation of cards and participate in settlement directly or through a sponsor bank arrangement.

Cards issued will be EMV chip and PIN compliant

Interoperable cards will be EMV chip and PIN compliant except for gift and MTS cards which can be issued as magstripe cards with a loading value of 10,000 INR and 3,000 INR (reloadable) respectively.

Applicable for full KYC customers only

Min-KYC customers will not be able to take benefit of interoperability as the risk for such category of customer is high.

Act as payment service provider (PSP) in UPI

Non-bank PPI issuers will be issued a UPI handle by NPCI and will be allowed to on-board their wallet customers only. Nonbank players cannot provide UPI handles to other partners.

Impact on stakeholders of the payments ecosystem

PPI interoperability was a much-awaited step. It is likely to be a game changer for the payments industry, in addition to making the overall PPI ecosystem much more robust. The move is going to impact almost all the stakeholders of the payments ecosystem and will likely make the business environment more competitive and innovative, thus benefiting the end customer. Interoperability is also likely to reduce complexities for most of the stakeholders in terms of PPI deployment and usage. The key impact on different stakeholders is summarised below:


  • Will be able to transfer funds from one wallet to another and bank accounts.
  • Will be able to make payments across the merchant network of any other bank/PPI issuer that embraces interoperability.
  • Will have direct access to the payments ecosystem without opening a bank account.

PPI issuers

  • Will become a quasi-bank in terms of payments.
  • Will get better access to payment infrastructure and dependency on banks for access/settlement, etc., will be reduced.
  • May choose not to invest significantly in acquiring infrastructure.
  • Are likely to be more regulated and have to abide by pricing, risk management, dispute and settlement policies.
  • Additional revenue source in terms of interchange for UPI and prepaid cards; however, additional investment may be required for setting up the necessary infrastructure.

Payments banks

  • Business model is likely to be impacted as PPIs opting for interoperability will have similar privileges.
  • They might have to explore alternative business avenues and value propositions to remain competitive in the ecosystem.

Universal bank

  • Sponsor bank business for participation in UPI is likely to be hit.
  • BIN sponsorship (co-branding) business model of card issuance may see some dip and could impact bank revenues.


  • Digital commerce at merchants will get a major boost:
    • Customers using any PPIs will be able to make payments at merchants acquired by another PPI issuer/bank.
    • Merchants might choose not to sign up with multiple PPI issuers to accept payments.

NPCI/card network

  • Card network will get an additional set of clients (PPI players) for issuance and operation of cards.
  • Digital payment instruments, i.e. UPI and Bharat QR, are likely to get a boost.

Boost to digital payments and greater financial inclusion

Post demonetisation, the PPI industry has seen tremendous growth as customers started adopting PPIs as a mode of seamless payment due to the cash liquidity crisis. However, PPI players saw a dip in volume and value in March 2018 as the central bank’s strict KYC norms came into place. The regulator’s revised directions for PPIs may be considered as a step towards making PPIs a crucial part of the financial services industry and bringing them on a par with banks. Additionally, these directions will help in making the economy more financially inclusive. The efforts of the PPI industry towards building a reliable, secure and robust payments system have increased the confidence of the regulator and other stakeholders in the industry’s ability to play a larger role in the financial services ecosystem. Interoperability is likely to transform the overall payments ecosystem in the near future, leading to the following changes:

Provide easy access to payments products such as UPI and cards to unbanked and under-banked populations.
Likely to increase financial inclusion and digital payment adoption across the country.
With UPI 2.0 already live, P2M transactions are likely to increase as PPI players have already acquired many merchants in tier 2–3 cities.
The overall payments ecosystem will become more competitive, creating a level playing field for PPI players.
With inputs from Arun Suresh and Neema Kar

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