Whalesbook
Foreign Visitor Payments Get a Regulatory Boost
The Reserve Bank of India has proposed a significant overhaul of its Prepaid Payment Instrument (PPI) regulations with draft rules aiming to create a more consolidated and up-to-date framework focused on compliance and customer protection. A key part of the proposed guidelines is a specific framework for prepaid wallets for foreign nationals and non-resident Indians visiting India, called 'UPI One World' wallets. These wallets will allow loading via foreign exchange and use for merchant payments, capped at ₹5 lakh per month. The initiative aims to encourage foreign visitors to use India's advanced payment system.
Deepening UPI Integration and Ecosystem Connectivity
Beyond foreign visitor access, the draft emphasizes greater integration of PPIs with the Unified Payments Interface (UPI). Issuers will need to facilitate interoperability and make their wallets discoverable on third-party UPI applications. This enhanced visibility is expected to drive increased use of prepaid instruments within India's large digital payments ecosystem. UPI handles over 13 billion monthly transactions and supports a large part of India's digital retail payments. The RBI's 'Payments Vision 2028' also aims to strengthen this ecosystem through greater security, trust, and global competitiveness.
Enhanced Customer Protection Measures
The proposed framework introduces stricter customer protection measures, aiming to reduce dormant balances. PPIs inactive for one year will be closed if not reactivated within another year. Refunds for failed or cancelled transactions must be credited back to the PPI immediately. For issuers, especially non-bank entities, there is an intensified focus on ongoing compliance, including stringent escrow management, clear fund segregation, and auditor certifications. Disclosure and grievance redressal requirements are also bolstered, requiring clear, multilingual communication of terms and fees, along with a formal complaint process that includes access to the RBI's ombudsman scheme.
Challenges for Wallet Growth Under New Rules
While the new PPI framework offers some advantages for wallet players through better UPI integration and visibility, it may not reignite strong wallet-led growth as a main strategy. Historically, the rapid rise of UPI, which allows direct bank transfers without needing to hold funds in wallets, significantly impacted PPI growth from 2016 to 2018. This new regulatory focus, while good for foreign visitor adoption, heavily emphasizes compliance and customer safety, potentially increasing operational challenges for issuers. Wallet providers might find their core business models increasingly standardized by UPI's widespread use. This shift could push competition towards other financial services instead of core payment instrument growth. Increased regulatory scrutiny on escrow management and compliance, along with enhanced digital payment authentication rules taking effect April 1, 2026, adds complexity that could slow aggressive expansion plans. The focus on adherence over broad market expansion may lead to consolidation among some players.
What PPI Issuers Need to Consider
These draft guidelines signal a strategic adjustment by the RBI, prioritizing a secure and customer-focused digital payments environment. The new services for foreign visitors and deeper UPI integration are positive steps towards India's goal of being a global digital payments hub. For existing PPI issuers, the focus appears to be on strengthening operational integrity and customer trust. Success will depend on how effectively issuers balance enhanced compliance requirements with strategies for sustained growth in a market increasingly dominated by UPI.