What is PPI and How is it different from UPI?

The Prepaid Payment Instrumentation (PPI) wallets are now allowed to participate in the interoperable UPI ecosystem, according to the National Payments Corporation of India (NPCI), and there is no fee for users. The bank account to bank account-based UPI payments will be free of charge (normal UPI payments). According to a statement from the NPCI, the interchange fees that have been implemented are only relevant for PPI merchant transactions. Customers will not be charged.

What is PPI?

PPIs, or prepaid payment instruments, make it easier to pay for products and services, including financial services, remittances, and cash transfers to family and friends using the value that is held on the PPI. The value that has been kept in the instrument reflects the value that has already been paid for by the holder or the instrument through cash, a credit card, or through other PPIs.

One can transfer and receive money using prepaid payment instruments without physically exchanging cash or credit cards. Examples of prepaid payment instruments are online wallets, smart cards, paper coupons and online accounts. These instruments' main goal is to provide users access to previously prepaid funds.

The PPI wallets are now allowed to be a part of the interoperable UPI ecosystem under the most recent regulatory rules, according to the NPCI. Customers won't be harmed by the recent change, according to Ameet Venkeshwar, Business Head at LoanTap, as the additional cost would be covered by the merchant.

Every transaction made over UPI utilising the PPI method and exceeding Rs 2000 while using any digital wallet, such as Paytm, PhonePe, etc., would incur a 1.1% fee. This will also be valid when utilising the UPI option to load digital wallets. All bank-to-bank transactions will continue to be cost-free. Only UPI transactions made to a merchant are covered by this. Venkeshwar stated that the merchant will be responsible for the additional cost.

A very common query is that, would it have an impact on those who use payment methods like GPay, Paytm, and PhonePe? is a prevalent query. Ameet Venkeshwar said that it won't have an effect on customers. Peer-to-peer transactions made using GPay, Paytm, and PhonePe would not be impacted in any way. As the majority of typical daily transactions are around Rs 2000, it is also unlikely to have an impact on small businesses. The only UPI transactions that incur an additional fee at the merchant's end are those over Rs 2000 transferred to a merchant using PPI wallets when making purchases, dining out, etc.

What distinguishes PPI from UPI payments?

PPI transactions use prepaid payment methods like mobile wallets, gift cards, and other online payment methods, whereas UPI transactions are real-time transfers between two bank accounts. While PPIs are frequently used for bill payments, online shopping, and other activities, UPI is mostly utilised for Peer to Peer transfers and merchant payments. In comparison to PPI, UPI also has a higher payment limit.