Mumbai | The Reserve Bank on Friday allowed prepaid payment instruments holders to make and receive UPI payments through third-party mobile applications.

It has been decided to enable Unified Payments Interface (UPI) payments from/to full-KYC prepaid payment instruments (PPIs) through third-party UPI applications, the central bank said in circular.

"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," it said.

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.

Currently, UPI payments from/to a bank account can be carried out using the UPI application of that bank or of any third-party application provider.

However, UPI payments from/to a PPI can only be carried out using the mobile application provided by the PPI issuer.

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