Prepaid Wallet Interoperability: What RBI’s Master Direction Says

Raghvendra Sonker

15 Oct, 2022

Government of India and the Reserve Bank of India (RBI) have taken several steps and initiated frameworks for encouraging digital payments.The roll outs of Digital wallets have proved beneficial for fulfilling the government’s plan of creating a digital economy. As of now, wallets of different payment service providers are not allowed to directly transfer money to each other like money can’t be transferred from PhonePe Wallet to Paytm. The prepaid payment instruments (PPI) that provide prepaid payment services in the form of digital wallets, like Paytm, GPay, PhonePe and Bharatpe, MobiKwik etc., will have to enable interoperability of wallets by March 2022.

What is Prepaid Wallet Interoperability?

Interoperability is a concept where one payment system provider is connected technically with another payment service provider’s platform to use the facilities of other payment systems. Interoperability allows Prepaid Payment Instruments (PPIs) issuers and payment system providers to clear and settle payment transactions across platforms without participating in multiple systems.

RBI Guidelines for Prepaid Wallet Interoperability

In 2021, the RBI released a Master Directions on Prepaid Payment Instruments (PPIs), which discusses the issuance, operation and types of Prepaid Payment Instruments and has consolidated Interoperability guidelines.Under this master direction, Prepaid Payment Instruments (PPIs) have been further classified into two categories small PPIs and full KYC^[1] PPIs. In this blog, we will discuss the guidelines issued by the Reserve Bank of India for prepaid wallet interoperability.

The RBI guidelines mandated the Payment Wallet operator to have full interoperability by March 2022. Some major requirements for achieving Prepaid Wallet Interoperability through card networks and UPI are discussed mentioned below:

• A PPI issuer must have a board-approved policy for achieving PPI full interoperability.
• Where PPIs are issued in digital wallets and cards, Prepaid Wallet Interoperability shall be enabled through UPI (Unified Payment Interface) and authorised card networks.
• The Prepaid wallet Interoperability shall be facilitated for all KYC-compliant PPIs and overall payment acceptance infrastructure. The PPI issuer must provide interoperability to the holders of full-KYC PPIs (KYC-compliant PPIs) through UPI (for wallets) and authorised card networks (forms of cards; physical or virtual).
• PPI interoperability shall be achieved by March 31, 2022, for any other means of payment acceptance infrastructure.
• All on-boarded merchants shall be accessible through UPI and card networks.
• A PPI issuer must comply with regulations, certifications and different requirements of the UPI and card networks applicable to the payment service providers.
• A Prepaid Payment Instrument issuer must adhere to all dispute resolution guidelines and customer grievance redressal mechanisms prescribed by the card networks and the National Payment Corporation of India.

• Additionally, it said that PPI issuers may join card networks as members and shall comply with the requirements of the card network’s settlement system.
• For secure transactions, Banks or Non-Banks issuing new PPIs in the form of cards must be EMV chip and PIN compliant.
• PPI issuer must ensure the standard features of Prepaid Wallet Interoperability through UPI.

• NPCI issues policy/guidelines for risk management.
• A PPI issuer acting as a payment service provider on-board PPI holder only (no banks or other PPI issuer).
• The PPI holder shall complete the authentication process (two-factor authentication process)as per the credentials of the existing wallet. (Pre-approved transaction before it reaches the UPI).
• Prepaid Wallet Interoperability allows PPI issuers, payment service providers, and participants in different systems to carry out, settle and clear payments across systems without getting involved in multiple systems (both for Banks and Non-Banks). A Non- Banks payment service provider shall participate through a sponsor bank, comply with the arrangement rules of a sponsor bank in UPI, and meet the NPCI criteria for participation.
• PPI for Mass Transit System is wholly exempted from interoperability, while the Gift PPI issuer can offer interoperability according to their wish.

Conclusion

Successful interoperability between PPIs such as wallets and cards will allow users to transfer money from one wallet to another. Some popular payment wallets are Paytm, GPay, PhonePe, Freecharge, Mobikwik etc. With the interoperability of PPIs, consumers will be eligible to make payments from a wallet to any merchant accepting digital payments. This concept of interoperability brings wallets on par with cards and changes the consumer’s behaviour.

Only wallets that comply with KYC requirements will be able to interoperate, and the RBI has established a tight set of guidelines to protect digital wallets and stop transactions using fraudulent wallets. The RBI Master Directions appear to be a progressive step intended to help non-banking organisations acting as PPI Issuers and increase digital transactions. Prepaid Wallet Interoperability enables wallet users to transfer money to any other wallet over UPI and permits PPI Issuers to create new UPI handles. This will further assist non-banks in tapping into a customer base that does not currently possess payment wallets.

Read our Article: Interoperability of PPIs: RBI mandates pre-paid cards, wallets to be made interoperable