This article has been published by Outlook Business at:
Prepaid Payment Instruments, or PPIs, are financial payment tools to store money for future use. Regulated by the RBI, the PPI industry has witnessed seismic shifts and endured intense regulatory scrutiny, mirroring the dynamic and ever-changing regulatory landscape of the Indian payments ecosystem in the past decade. While the Indian government’s 2016 demonetisation of high-value currency provided the initial impetus, the rise of affordable internet fueled this growth, igniting a wildfire of fintech innovation (including the dramatic rise of the Buy Now Pay Later (BNPL) products) that gave birth to some of the behemoths of the payments industry.
However, the PPI story has, over the years, received crushing blows, due to the rise of Unified Payments Interface (UPI) as inarguably the preferred payment option for Indians, as well as the RBI’s clampdown of some PPI-based fintech innovations, including BNPL products where the RBI prohibited loading PPIs with credit lines.
Time for a Comeback?
According to official figures for digital payments published by the RBI in its Payments System Report in December 2024, in the past five years, the volume and value of UPI transactions have witnessed a meteoric rise, growing at a five-year compound annual growth rate (CAGR) of 89.3% and 86.5%, respectively. In stark contrast, the volume and value of PPI transactions has grown at a measly CAGR of 6.25% and 0.48%, respectively. Overall, the share of UPI transactions in digital payments volume has surged massively from 34% in calendar year 2019 to 83% in calendar year 2024, generating an exceptional CAGR of 74% over a five-year period, while the share of all other payment options combined has decreased from 66% to 17% in this period. These figures unmistakably reveal a fall from grace for the PPI industry.
Although regulatory actions have posed a major challenge for the PPI industry, some recent steps by the RBI may just be the shot in the arm the PPI industry desperately needed. Specifically, the recent decision of the regulator to enable UPI access for PPIs through TPAPs can prove to be a game changer for this industry. While the regulatory intent of promoting interoperability can be traced back to 2017, the rollout of this step has been slow and cautious. Despite this, this recently sanctioned UPI access for PPIs through third-party applications can prove to be a monumental step in bolstering interoperability for PPIs, allowing full-KYC PPIs to seamlessly integrate UPI payments by linking customer PPIs to their UPI handles.
Further, the regulator has also introduced other measures aimed at promoting PPIs, such as encouraging the usage of prepaid cards in mass transit systems. The introduction of the National Common Mobility Card demonstrates a significant potential use-case of this instrument in the public transport sector in the country. To further encourage this, the regulator has permitted all authorised entities to issue such PPIs, with an objective to widen the outreach and further enhance the digital payments through PPIs, across various public transport systems in the country.
Given UPI’s meteoric rise, with its transformative offerings such as enabling seamless interoperability between RuPay credit cards and extending credit lines through UPI, the landscape of digital payments has been radically altered. The question that looms large is whether the same UPI whose growth came at the cost of PPIs, could now be a lifeline for PPIs, injecting new vigour into an industry grappling for survival. As the regulatory measures unfold, it remains to be seen if these steps will indeed be the second wind that breathes life back into the beleaguered PPI industry, setting the stage for a dramatic resurgence of the great Indian PPI story.