…then the risk of India reverting back to cash transactions; First white paper published by India Foundation

Proposed changes to India’s prepaid payment instrument (PPI) framework could have unintended consequences for digital payment adoption, financial inclusion and day-to-day consumer transactions, if not done carefully, according to a new white paper released by the First India Foundation. The white paper, titled ‘Prepaid Payment Instruments and India’s Digital Payment Ecosystem: Balancing Regulatory Objectives with Adoption, Inclusion and Innovation’, examines the growing role of PPIs in India’s digital economy and the potential impact of ongoing regulatory developments.

Based on more than six years of RBI’s payment system data, the study found that the number of PPIs will reach 98,699 lakh in FY 2025-26, becoming an important component of India’s digital payments infrastructure. This white paper recommends a proportionate and risk-based regulatory framework, which will adapt compliance requirements to actual risk levels. It also calls for preserving low-value, high-frequency use cases, conducting regulatory impact assessments before major policy interventions, balancing consumer protection and accessibility, and adopting a phased implementation approach for significant regulatory changes.

The study also found that PPIs often act as a gateway to the digital economy for first-time adopters and provide convenient payment solutions that complement India’s extensive digital public infrastructure, providing a simple and easy way to participate in the formal digital economy. Their easy availability has made them particularly useful for gig workers, small traders and the economically disadvantaged. This has led to an increase in RBI’s ‘Digital Payment Index’ (DPI) from 217.74 in September 2020 to 516.76 in September 2025. That means it has increased by 137% with continuous growth in eleven consecutive periods.

“It appears that ‘PPIs’ (Prepaid Payment Instruments) have become an important means of digital payment for millions of users. Convenience, easy availability and ease of use are the main reasons behind their rapid adoption. As policymakers seek to strengthen consumer protection and operational resilience, it is important that regulatory measures are scaled, evidence-based and complement the continued adoption of these services,” said a senior at First India Foundation. Economist and co-author of this report Dr. Suyog Dandekar said.

The report also highlights the importance of PPI in achieving several national policy objectives such as adoption of digital payments, financial inclusion, ease of living, innovation and competitiveness. According to the report, PPIs cater to a wide variety of users – including ‘gig workers’ (temporary/contract-based workers), MSMEs, platform users and people from low-income groups. This helps them reduce their dependence on cash, participate in the formal economy and spur innovation from banks as well as fintech companies.

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“The success of digital payments in India is based on a combination of factors such as trust, innovation and ease-of-use. According to available data, PPI’s place in this ecosystem is critical, especially for low-value and frequent transactions. The purpose of this report is to incorporate evidence into the policy debate and contribute to the creation of such a regulatory framework; which will protect consumers and at the same time preserve the ease and convenience that has led to the widespread adoption of PPI,” it said. Surbhi Singh, Research Associate of ‘Pahile India Foundation’ and co-author of the report said.