Unified payments interface (UPI), a home-grown product that was launched in 2016, is continuing to garner popularity and universal acceptance. France became another country in the expanding list of nations that shall adopt UPI for digital payments.
In July 2021, Bhutan was the first country to allow UPI through BHIM followed by Nepal. India has an MoU with 13 countries for the adaption of UPI-based digital payments. The rapid progress in digital payments will also aid remittances to and from India by reducing the overall transaction cost.
Against the backdrop of a strong UPI, the Central Bank Digital Currency (CBDC) of India — the e-Rupee — was set to make its debut in the pilot stage in November 2022. In the initial phase, it was touted as an alternative to UPI and other mobile payments. Given the popularity of UPI, concerns were raised about whether the economy needs a CBDC when the cashless economy is already functioning well.
Some believe that the e-Rupee needs to take centre-stage — and limelight away from UPI — for it to be successful. More than six months in operation now, the e-Rupee is harmoniously co-existing with UPI. The e-Rupee retail transactions as on March 31, 2023, stood at ₹10 crore.
Tweaking the design
Mastercard’s 2022 New Payments Index shows that Indians are the most willing among Asia-Pacific consumers to use emerging cashless payment methods. It is against this context that the e-Rupee was introduced as a pilot last December.
Though adoption was slow in the initial stages, the uptake has been significant lately. The primary reason for this has been the tweaking of e-Rupee’s design. The vexing issue of interoperability of e-Rupee with UPI has been addressed both at the front and back ends. India needs to showcase e-Rupee and it is paramount that its acceptance be as high as UPI.
The major reason for cash preference is ‘anonymity’. UPI transactions are between two banks and hence leave a digital footprint, irrespective of the amount.
However, it is expected that e-Rupee shall feature anonymity up to a certain amount; like in the case of physical cash above ₹50,000 one needs a PAN card. Smaller value transactions between two individuals would not involve their banks and be as anonymous as cash. One lesser-known fact is that UPI rides on the money in the user’s bank account and hence is not the liability of the central bank. Whereas the e-Rupee, akin to physical cash, is the liability of the central bank. UPI money earns interest while the e-Rupee will not.
The popularity of UPI is so high that a proposal to levy merchant discount rates for each payment was called off. As a result, RBI and banks bear the cost of running and maintaining the UPI platform. In the long run, sustaining UPI without fees could be difficult. Therefore, the e-Rupee needs to be advocated and pushed aggressively. e-Rupee also has the advantage of programming money so that it is spent for a dedicated purpose. For instance, subsidy money issued in the form of vouchers of e-Rupee can be engineered to be redeemed only at the designated place. Students receiving scholarships in the form of e-Rupee can use it only for payment of fees.
All these help deliver benefits to the right beneficiaries whilst minimising leakages and waste. The icing on the cake is e-Rupee does not need a bank account to operate and can be used for offline transactions too.
There is no doubt that UPI has been the hallmark of India’s footprint in the fintech space and also in achieving a cashless economy. However, the e-Rupee has to be the main protagonist in driving the economy forward. Internationalisation of e-Rupee will not only bring unprecedented benefits for the economy but will also economise on the cost of printing and distribution of banknotes.
Ashish is Joint Director, Ministry of Rural Development, and Sakshi is Assistant Director, University of Chicago. Views are personal