Single QR Code for Digital Rupee Payments

  • 07 Sep 2023

Recently, banks in India have introduced interoperability between Unified Payments Interface (UPI) QR codes and central bank digital currency (CBDC) applications, enabling users of the retail digital rupee to make transactions by scanning any UPI QR code at merchant outlets.

This integration simplifies the process of using digital rupees for everyday transactions.

Key Points:

  • Definition: Interoperability is the technical compatibility that allows a payment system to work seamlessly with other payment systems, as defined by the Reserve Bank of India (RBI).
  • Benefits: Interoperability facilitates payment transactions across systems without requiring users to engage with multiple platforms. It enhances adoption, coexistence, innovation, and efficiency for users.
  • Integration: The interoperability of UPI and CBDC means that all UPI QR codes are compatible with CBDC applications.
  • Previous Process: Initially, retail digital rupee users needed to scan a specific QR code for transactions. Now, they can use a single QR code for payments.

Benefits to Merchants

  • Seamless Transactions: UPI and CBDC interoperability ensures smooth transactions between customers and merchants without the need to switch between multiple digital platforms.
  • Daily Needs Payments: Users can make payments for daily necessities like groceries and medicines by scanning any UPI QR code at merchant outlets.
  • Merchant Convenience: Merchants do not need a separate QR code to accept digital rupee payments; they can accept CBDC payments using their existing QR code.

Increasing CBDC Adoption

  • Current UPI Usage: UPI is a widely used payment method in India, with over 70 mobile apps and more than 50 million merchants accepting UPI payments.
  • Retail Digital Rupee Adoption: In July, RBI Deputy Governor mentioned that there were 1.3 million customers and 0.3 million merchants using the retail digital rupee.
  • Game Changer: The integration of CBDC with UPI is expected to boost the acceptance and use of digital currencies in everyday transactions, making it a game changer for the digital currency ecosystem.

What is a QR Code?

  • Description: A QR code is a pattern of black squares on a white background, readable by imaging devices like cameras. It contains information related to the item it represents.
  • Contactless Payments: QR codes enable contactless payments, allowing businesses to accept payments directly into their bank accounts.

Digital Rupee Overview

  • The digital rupee represents a form of currency similar to traditional banknotes but exists solely in virtual form, lacking physical tangible characteristics.
  • Its primary purpose is to enhance the efficiency, cost-effectiveness, and speed of the payment system by facilitating seamless digital transactions.
  • Users can make direct payments using digital rupees, reducing transaction costs and streamlining electronic transactions.

Central Bank Digital Currency (CBDC) Definition

  • The Reserve Bank of India (RBI) defines CBDC as a digital representation of legal tender issued by a central bank. It holds the same value as fiat currency and can be exchanged on a one-to-one basis with physical currency.
  • Transactions involving CBDC are executed using blockchain-backed wallets, ensuring the finality of payments and minimizing settlement risk.
  • CBDC is freely convertible to physical currency, allowing the exchange of digital currency for cash, akin to paper notes.
  • Unlike UPI (Unified Payments Interface), e-rupees transactions do not necessitate a bank account.

Regulation and Decentralization

  • The e-Rupee, unlike cryptocurrencies, will have legal status and will not operate in a decentralized manner. It will be subject to regulatory oversight by the RBI.
  • On the central bank's balance sheet, the digital rupee will be recorded as a liability under the category of currency in circulation.
  • The digital rupee system will complement existing financial transaction methods, providing users with an additional payment alternative.

Benefits of Digital Rupee

  • Strengthening India's Digital Economy: The RBI anticipates that the digital rupee will enhance India's digital economy, foster financial inclusion, and improve the efficiency of monetary and payment systems.
  • Cost Reduction: By minimizing the need for physical cash management, the digital rupee will lower associated costs. It is expected to streamline cross-border transactions, simplifying bank cash management and operations.
  • Sustainability: The digital currency's virtual nature eliminates physical damage and loss risks, offering an unlimited lifeline. Additionally, it helps mitigate the volatility associated with cryptocurrencies like Bitcoin.
  • Environmental Impact: Reduced reliance on paper currency translates to lower printing, distribution, and storage costs. The e-rupee can contribute significantly to environmental conservation by advancing a cashless economy.