RBI releases directive to non-PPI firms to halt co-branded UPI service

UPI

In a move to regulate the Prepaid Payment Instrument players and encourage non-PPIs to get a license, the Reserve Bank of India issued a directive through the National Payments Corporation of India (NPCI) to firms like DreamX to halt their UPI services carried in a co-branded arrangement.

This move also restricts any move by which PPI operations are run on a third-party app for distribution.
“RBI is very clear that if you have not got a license, you should not do a co-branding exercise. You should not rent it out to others. A bank PPI should not be used on any other apps,” said a source aware of the development.

The source added that there were fewer than 10,000 users onboarded on such a model. RBI directive to the National Payments Corporation of India (NPCI) is only meant to clarify the regulations rather than to block any service, the source said.

For instance, if a bank holds the PPI license, then a fintech firm that has a partnership with the bank should not be distributing it on their app. It should be distributed only on the bank app, the clarification says.

A PPI is an instrument like a wallet or a prepaid card that helps facilitate the purchase of goods and services, including financial services, remittances, and fund transfers to family and friends only against the value stored on such instruments.

“RBI does not have sufficient comfort whether the sponsoring PPI (bank or the PPI license holder) has adequate control over the proceedings or not. Overall this means that the regulator wants to monitor the PPI instrument more closely,” says a senior bank executive.

RBI has concerns regarding KYC as well as money laundering when the license partner does not have full visibility into the operation of the final PPI operator, the executive adds.

A company needs to have a PPI license to operate a wallet and a PSP license to run UPI services as a TPAP (Third Party Payments Provider). Fintechs that don’t have either of these partner with entities that have these licenses to provide these payment services to their end customers. RBI seems to be cracking down on these methods.

This comes months after the National Payments Council of India (NPCI) recently permitted PPI wallets to be part of the UPI ecosystem with an interchange fee of 1.1 percent for transactions above Rs 2,000. So, without either of these licenses, they should not be running the PPI business.

Moneycontrol has also learned that PPI License holders received an email from RBI last week which mentioned that
non-PPIs cannot undertake UPI services with any third-party PPI license holders.

Entracker reported that firms like  Dreamx (Dream11), Fampay, Akudo, and Muvi do not have their own PPI License and they operate in collaboration with PPI license holding companies like Pine Labs or through banks like IDFC or Union Bank.

In March 2023, Dream Sports, the parent firm of India's largest fantasy sports firm Dream11, launched its mobile payments app called DreamX.

Moneycontrol reached out to Dream Sports and Fampay. The companies did not comment on whether they received any directives from NPCI or RBI.