The Reserve Bank of India’s Draft Master Direction on Prepaid Payment Instruments (PPIs) for 2026 signals a clear shift toward treating digital wallets like traditional banking services, applying the principle of “same activity, same risk, same regulation.”
New governance rules target non‑bank PPI issuers
Under the draft, non‑bank entities that issue prepaid payment instruments must meet governance standards usually reserved for regulated banks. Promoters and directors are now required to satisfy strict “fit and proper” criteria, and customer onboarding must follow the RBI’s existing know‑your‑customer (KYC) framework.
The focus moves away from the technology that powers the service and toward the risks tied to onboarding, anti‑money‑laundering compliance, and payment execution. Issuers will also need to maintain grievance‑redress mechanisms, provide access to an ombudsman, and adhere to dispute‑resolution and compensation rules. Funds held by PPIs must be kept in segregated escrow accounts that are subject to auditor oversight.
Full‑KYC prepaid instruments will have to operate through interoperable networks such as the Unified Payments Interface (UPI) and established card systems, ensuring they integrate with the broader payment ecosystem.
Global trend toward activity‑based supervision
The RBI’s approach mirrors a broader international movement away from what some observers call “fintech exceptionalism.” The Financial Stability Board, in a recent report on fintech and market structure, recommended a technology‑neutral framework that classifies activities by their economic function rather than by the type of firm that performs them.
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Similarly, the Bank for International Settlements has argued that comparable activities creating comparable risks should not escape oversight simply because they are carried out by non‑traditional actors. European regulators have adopted comparable language; the European Central Bank states it follows the principle of “same business, same risks, same supervision.”
By aligning its draft with these global perspectives, the RBI makes clear that tighter regulation is not about penalizing fintech firms but about recognizing that activities involving customer funds, payment processing, operational resilience, and consumer protection pose risks akin to those faced by traditional financial intermediaries.
The draft’s impact reaches beyond digital wallets. It reflects the maturation of India’s fintech ecosystem and the increasing responsibility placed on firms that have become integral to the country’s financial system.
While the draft tightens rules, it also offers a more predictable regulatory environment for firms that can meet the heightened standards. Companies that adapt may find a level playing field with banks, potentially unlocking new partnership opportunities.
Regulators anticipate that the move could encourage more robust risk‑management practices across the sector, building greater confidence among users and investors alike.
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India phases out regulatory exceptionalism
Regulatory leniency has often been justified when a technology is in its early stages. In India, however, the ecosystem surrounding UPI, Aadhaar‑based KYC, and the BHIM app has matured to a point where differentiated treatment appears less defensible.
The draft directions thus represent a broader transformation in Indian financial regulation. The question is no longer whether an entity is a fintech startup or a bank, but what function it performs, what risks it creates, and what safeguards are needed.
By categorising all prepaid payment instruments under a unified regulatory regime, the RBI aims to phase out relaxed rules and enforce full‑scale banking compliance across the board.
In practice, this could mean that smaller wallet providers will need to invest in stronger compliance teams and audit capabilities, potentially raising operating costs. Yet the consistency may also reduce regulatory arbitrage, ensuring that consumers receive comparable protection regardless of the service provider.
Overall, the shift reflects India’s move toward a regulatory philosophy that could influence other jurisdictions: similar risks demand similar safeguards, irrespective of the entity’s identity.
