This enables UPI compatibility for transactions between retail digital E-rupee wallets, paving the way for a larger usage of electronic money.
CHENNAI: Indian banks introduced interoperability between the nation’s digital payment platform – Unified Payments Interface (UPI) and Central Bank Digital Currency (CBDC) – as central banks across the world are debating whether or not to issue digital currencies. This enables UPI compatibility for transactions between retail digital rupee wallets, paving the way for a larger usage of electronic money.
What are CBDCs?
Similar to the paper money we use, the Reserve Bank of India’s (RBI) Digital Rupee (eS), a CBDC, is a legal tender. It is directly a claim on the balance sheet of the central bank and has a sovereign guarantee. It can be turned into commercial bank money and cash and used to complete transactions or store value digitally.
In order to evaluate the generation, distribution, and retail use of digital rupees in real-time, the RBI launched the CBDC-retail pilot program in December. As of August 31, 2023, 14.6 lakh users and 3.1 lakh merchants were presently a part of the trial, according to the RBI.
Virtual currencies
Due to their lack of inherent value, asset backing, or government guarantee, CBDCs are entirely different from cryptocurrencies like Bitcoin.
UPI- CBDC interoperability
Users will be able to scan any retailer’s UPI QR code and make a payment using a digital rupee (retail) wallet thanks to the UPI- CBDC interoperability functionality. The merchant can accept e-rupee payments from the sender without the need for a separate QR code or e-rupee wallet. Users can also utilise their CBDC wallets to make purchases using the UPI QR.
What benefits do compatible systems provide?
According to officials, UPI will reach 100 billion monthly transactions and have 35 crore more registered users than it already has. Even for small amounts, many people utilize UPI-based applications for daily transactions.
This enables users of CBDC wallets to connect to this network using e-rupee. This builds up a solid foundation for e-rupee’s widespread adoption.
Commercial banks think that this integration will revolutionise the nation’s digital payment ecosystem and speed up the shift to a cashless society.
Furthermore, it can improve financial inclusion, so the theory goes. A senior banking official recently stated that the UPI interoperability capability will significantly increase the adoption of CBDC throughout the nation.
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Several sizable commercial and public sector banks currently support UPI- CBDC compatibility, including State Bank of India, Union Bank, IDFC First, Punjab National Bank, HDFC, ICICI, Kotak Mahindra, and YES Bank, among others.
How might you employ eS?
Retail customers can download the various banks’ “Digital Rupee” app. The RBI is gradually introducing the digital rupee in order to prevent a widespread disruption. Banks have pre-selected individuals and permitted users from specific cities, primarily major tier-II cities and metropolises, to use digital rupee applications.
Each bank has released a specific “Digital Rupee” Android mobile application. While some banks have iOS apps, few have actually made them available.
Users can download the digital rupee app from the relevant bank.
Use the same SIM card that is listed on the bank account to register.
Create an app PIN and use the device password to authenticate
Enter your name, then select your wallet.
Choose and connect a specific bank account to the wallet.
By selecting the “Load digital Rupee” option, you can send money from a linked account or via other UPI apps.
Following verification, the connected account will be immediately debited and the digital rupee wallet instantaneously credited with the chosen denominations.
The denominations of eS will be identical to those of present paper money and coins.
One wallet with one bank is possible.
Use the same SIM card that is listed on the bank account to register.
Create an app PIN and use the device password to authenticate
Enter your name, then select your wallet.
Choose and connect a specific bank account to the wallet.
By selecting the “Load digital Rupee” option, you can send money from a linked account or via other UPI apps.
Following verification, the connected account will be immediately debited and the digital rupee wallet instantaneously credited with the chosen denominations.
The denominations of eS will be identical to those of present paper money and coins.
One wallet with one bank is possible.
Users of the digital rupee applications can download them and register. Upon approval, users will receive notification to take part in the pilot programme via registered email or SMS.
retail customer
Selected financial institutions were only permitted access to settle secondary market transactions in government securities under the CBDC-Wholesale Pilot, which began on November 1st, 2022. RBI intends to evaluate additional use cases in the future.
What benefits does e-rupee offer?
In contrast to conventional wallets, an individual’s e-rupee wallet can be recovered if their phone is lost. In order to lower operating costs associated with moving real cash, give alternatives for cryptocurrencies, lower settlement risk in the financial system, create efficient cross-border payment systems, and increase financial inclusion, the RBI chose to issue digital currency.
The distinction between UPI and CBDC
UPI is a platform for digital payments that enables immediate money transfers between two bank accounts.
Real-time digital payments are possible with UPI via an interbank interface.
E-rupee is also a type of digital money. It is a virtual representation of actual money.
E-Rupee
Users can pay with e-rupees by scanning UPI QR codes thanks to UPI-CBDC interoperability.
Users of the CBDC wallet can access the 35 crore+ UPI users for routine transactions, building a sizable basis for the adoption of the e-rupee.
