RBI's proposed wallet rules could change how Indians use Paytm, PhonePe and other digital wallets

The RBI’s draft wallet rules propose tighter limits and stricter norms, sparking concerns over convenience, fintech innovation and digital payment adoption in India. By Timsy Jaipuria India’s digital wallet ecosystem could be staring at its most significant regulatory overhaul in years, with the Reserve Bank of India’s proposed framework for Prepaid Payment Instruments (PPIs) triggering debate across the fintech and payments industry over the balance between tighter oversight and ease of digital transactions.

The RBI’s draft Master Direction on PPIs, released for stakeholder consultation in April, proposes sweeping changes covering wallet usage limits, interoperability norms, loading restrictions, governance standards and customer protection measures. The framework seeks to replace the existing 2021 regulations and create a more standardised structure for digital wallets, prepaid cards and stored-value payment systems.

At the centre of the proposed overhaul are fresh transaction caps for full-KYC wallets, stricter operational rules for issuers and tighter controls on wallet funding mechanisms — changes that industry executives say could materially alter the way PPIs are used across India’s rapidly expanding digital economy.

What are PPIs and why are they important? PPIs, commonly referred to as digital wallets, are instruments that allow users to store money digitally and use it for transactions such as merchant payments, utility bills, subscriptions, transit systems, online commerce and peer-to-peer transfers.

Over the past decade, PPIs have evolved far beyond being supplementary payment tools. Wallets are now deeply integrated into everyday economic activity — from quick-commerce purchases and mobility payments to food delivery, gaming ecosystems and gig economy payouts. For millions of users, wallets also function as budgeting tools that help separate discretionary spending from primary bank accounts.

Small merchants and kirana stores increasingly rely on QR-based wallet acceptance systems as low-cost digital payment infrastructure. The RBI said the revised framework is aimed at strengthening transaction security, improving customer protection and creating a conducive framework for the long-term growth of digital payments.

What does the draft framework propose? One of the most significant changes proposed is a monthly debit cap of ₹2 lakh for full-KYC PPIs. This cap would include merchant payments as well as transfers made from the wallet. In addition, peer-to-peer fund transfers from wallets to bank accounts or other wallets would be capped at ₹25,000 per month.

The draft norms also propose limiting cash loading in full-KYC wallets to ₹10,000 per month. The RBI has further proposed mandatory interoperability for all full-KYC wallets through card networks or Unified Payments Interface (UPI) rails, allowing wallet holders to transact seamlessly across payment ecosystems.

Other key provisions include: - Stronger grievance redressal systems and mandatory Ombudsman access for wallet users - Immediate refund reversals for failed or cancelled transactions - Stricter governance norms and cybersecurity audits for issuers - Higher net worth requirements for non-bank wallet issuers - Automatic deactivation of inactive wallets after prolonged inactivity - Standardised classification of PPIs into general-purpose and special-purpose instruments Under the draft rules, new non-bank entrants into the PPI ecosystem would need a minimum net worth of ₹5 crore at the time of authorisation, which must be increased to ₹15 crore within three years.

Why fintechs are concerned? While industry participants broadly agree with the need for stronger oversight and consumer safeguards, several executives and digital payments experts believe the cumulative effect of the proposed restrictions could introduce friction into a payments ecosystem built around speed and convenience.