RBI’s Interoperability guidelines for PPIs- A move to promote Digitalization

By Simran Jalan (simran@vinodkothari.com)


Interoperability is the ability of customers to use a set of payment instruments seamlessly with other users within the segment. It enables a payment system to be used in conjunction with other payment systems. It allows Prepaid Payment Instruments (PPI) issuers and other service providers to undertake, clear and settle payment transactions across systems, without participating in multiple systems. All the service providers adopt common standards so as to make the PPIs interoperable. This interoperability shall facilitate payments among different wallets inter se and with banks. Paytm, Freecharge, Oxygen wallet, Airtel money, etc. are some of the digital wallets operating in India currently.

Last year, RBI issued Master Directions on Issuance and Operation of Prepaid Payment Instruments[1] (“Master Directions”) to regulate the prepaid payment instruments and to monitor the working of the PPI issuers. This was the much required legislative framework to supervise the prepaid payment industry. The Master Directions also provided for interoperability of the PPIs. It stated that the interoperability shall be enabled in the following phases for the PPIs:

The Master Directions mandated the first phase for all KYC compliant PPIs (bank and non-bank) issued in the form of wallets to have interoperability amongst themselves through UPI within 6 months from the issue of the Master Directions. This ensured fair competition between the different PPI providers as some providers used to spend exorbitantly to get merchants on-board and this would in turn eliminate competition.

Prior to this Master Direction, a merchant had to keep the different QR codes for different wallets and the customer could digitally pay only if he had money in that wallet. For example, if a merchant keeps the QR codes of Paytm and Freecharge, then a customer can pay digitally only if he has money in Paytm or Freecharge wallets. Inter-operability allows the merchant to keep only one QR code, say, Paytm, and the customer can have money in any wallet, say Freecharge or Oxygen wallet, and the money can get transferred from the customer’s wallet to the merchant’s wallet through UPI.

The Master Directions provided regulations for the first phase of interoperability and stated that RBI shall issue regulations for the subsequent phases. Recently, RBI has issued PPI-Guidelines for Interoperability[2] (“Guidelines”), which provides directions for the second and third phase of interoperability, i.e., between wallets and banks through UPI and PPIs issued in the form of cards through card networks. To prepare better for implementation of interoperability, these Guidelines have been issued.

The PPI issuers, who choose to adopt interoperability shall ensure adherence to the Guidelines. In addition to instruction on KYC, security for transactions and application life cycle, cyber security, fraud prevention and risk management as provided in the Master Directions. The Guidelines provides that the interoperability shall be facilitated to all KYC compliant PPI accounts. It further, provides that all the participating PPI issuers shall be guided by the technical specifications for achieving interoperability through UPI and card networks as per the requirements of National Payments Corporation of India (NPCI).

Requirements for achieving interoperability

·        Achieving interoperability through UPI

All PPIs issued in the form of wallet can be made interoperable through UPI. Such PPIs must be KYC compliant. The PPI issuers shall act as Payment System Providers in the UPI. The NPCI taking into consideration the risk management aspects, will issue handle to the PPI users as per its policy. The PPI users shall link their customer wallets to the handle issued to them. For the purposes of settlement, a non-bank PPI issuer shall participate through a sponsor bank and it shall adhere to the requirements of sponsor bank arrangement in UPI and also meet all requirements of NPCI in this regard.

·        Achieving interoperability through card networks

Pursuant to these Guidelines, the non-bank PPI issuers can issue interoperable cards in association with the card networks. The interoperable cards issued by such entities is required to be EMV Chip and PIN compliant. PPIs in the form of gift cards and MTS, if opts to be interoperable, then may be issued without EMV Chip and PIN, however, meal cards can be issued only with EMV Chip and PIN. For the purposes of settlement, a non-bank PPI issuer can participate directly or through a sponsor bank, however, if the interoperability is achieved through UPI, a non-bank PPI issuer must mandatorily participate through a sponsor bank.


The Guidelines issued by RBI is a move aimed at promoting digital transactions and providing ease of business. It provides customers the flexibility to keep their money in their preferred wallets and transfer money from other wallets to their preferred wallet. They can even pay across merchant networks of any other PPI through UPI. This would increase the use of e-wallets for making payments and would in turn promote digitalization. This move of RBI is expected to strengthen the payments industry.

[1] https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11142

[2] https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11393&Mode=0

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