UPI vs PPI: What’s the Difference Between the Two?

Introduced on 11^th April 2016, UPI (Unified Payments Interface) is a payment system developed by the National Payments Corporation of India (NPCI). UPI was initially set up by the Reserve Bank of India (RBI) and the Indian Banks Association (IBA).

PPI (Prepaid Payment Instruments), on the other hand, is a tool that helps to facilitate the purchase of services and goods against the value stored on a card or device. 

Through this blog, we’ll understand the often confused differences between the two in terms of their definitions, features, types, benefits and other components.

What is UPI?

UPI (Unified Payments Interface) is a special tool that helps you send money to your friends or buy things from a store without needing to use cash or cards. With UPI, you can now complete an online transaction safely and within a few seconds anytime and anywhere. So instead of giving coins or accumulating paper money to make payments, you can use UPI to do it all digitally, making it easy and convenient for everyone.

Key Features of UPI

• UPI stands for Unified Payments Interface.
• It is a real-time payment system developed by the National Payments Corporation of India (NPCI).
• UPI allows users to instantly transfer money between bank accounts using their smartphones.
• Users can link multiple bank accounts to a single UPI ID.
• Transactions can be initiated 24/7, including weekends and holidays.
• UPI enables various types of transactions, including peer-to-peer transfers, bill payments, and merchant transactions.
• It provides a secure and convenient way to make digital payments without the need for bank account details.
• UPI offers a single click 2-factor authentication- aligned with regulatory guidelines, provides for strong features of seamless single click payment
• Utility bill payments, QR code-based payments and over-the-counter payments can be easily made with UPI.

Benefits of UPI

• Easy to Use
  • UPI makes sending money or paying bills quick and simple, with instant transfers.
• Safe and Secure
  • UPI transactions are protected by a PIN and sometimes even your fingerprint or face scan, making it one of the safest payment options.
• Widely Accepted
  • Many shops and businesses accept UPI, so you can use it almost anywhere.

What is PPI?

PPI, or Prepaid Payment Instrument, is a financial tool that enables users to preload funds onto a card or digital wallet for future transactions. Unlike traditional debit or credit cards linked to a bank account, PPIs allow individuals to manage their spending without the need for a formal banking relationship. Users can put money in PPI and use it for various purposes, such as online purchases, bill payments, or peer-to-peer transfers. 

PPIs provide a convenient and accessible way to make digital payments, particularly for individuals who may not have access to traditional banking services. They are regulated by the Reserve Bank of India to ensure consumer protection and the security of transactions.

Key Features of PPI 

• PPI stands for Prepaid Payment Instrument.
• It is a form of electronic payment that allows users to store funds in advance.
• PPIs can be physical cards (like prepaid debit cards) or digital wallets.
• Users load money onto the PPI, which can then be used for various transactions.
• PPIs are often used for online shopping, bill payments, and money transfers.
• They offer convenience and flexibility, especially for those without traditional bank accounts.
• PPIs are regulated by the Reserve Bank of India (RBI) to ensure consumer protection and security.

Types of PPIs in India

There are three types of PPIs in India as described below:

• Closed-System PPIs
  • These can only be used to buy goods or services from the company that issued them (like a store-specific gift card).
  • You can’t withdraw cash or use them for payments to other businesses or third-party services.
  • They don’t require approval from the RBI since they aren’t considered a full payment system.

• Semi-Closed PPIs
  • These are licensed by banks (permitted by RBI) and non-banks (authorized by the RBI).
  • They can be used at merchants who have a contract with the issuer (like mobile wallets).
  • You can’t withdraw cash with them, even if a bank or a non-bank issued them.
  • They are commonly used for things like remittance and online payments.

• Open-System PPIs
  • Examples include debit and credit cards, which allow both payments and cash withdrawals.
  • These are licensed by banks with RBI approval and can be used anywhere that accepts them, for services like paying bills or transferring money.
  • You can withdraw cash from ATMs, business agents, or point-of-sale terminals, but be careful with credit cards since withdrawing cash may come with high interest charges.

What is the Difference Between UPI and PPI?

PPI (Prepaid Payment Instrument) and UPI (Unified Payments Interface) are digital payment systems, yet they differ in functionality. PPIs like prepaid cards or mobile wallets require preloaded funds for transactions and are independent of bank accounts, catering to those without traditional banking access. Conversely, UPI enables instant bank-to-bank transfers directly linked to users’ accounts via a smartphone app. 

Although different, both of these are interrelated as well. PPI in UPI refers to digital wallets or prepaid accounts that can be linked to UPI for transactions. Users can load money into these PPIs and use them to make payments or transfer funds through UPI apps without directly accessing their bank accounts, thus making the whole process of the quickest and most secure online transaction just a click away.