The Reserve Bank of India (RBI) introduced the Central Bank Digital Currency (CBDC) known as the digital Rupee in 2022. This digital Rupee, often referred to as eRupee, is a tokenised version of the Indian Rupee and is under the regulation of the RBI. Users of the eRupee can now make payments using Unified Payments Interface (UPI) interoperability, allowing them to scan UPI quick-response codes (QR codes) at various merchant outlets to pay for items such as groceries and meals.
Currently, there are thirteen banks participating in the RBI”s digital Rupee pilot, and access to eRupees is available in 26 cities on an invitation-only basis for customers of these banks. Among the banks that have introduced UPI interoperability on their eRupee apps are Axis Bank, Canara Bank, HDFC Bank, Kotak Mahindra, and Yes Bank.
Rajiv Anand, Deputy Managing Director of Axis Bank, emphasised that the interoperability with UPI is expected to drive widespread adoption of the digital Rupee, combining the security and transaction speed of eRupee with the reach and user-friendliness of UPI.
Virat Diwanji, Group President & Head of Consumer Bank at Kotak Mahindra Bank, mentioned that once interoperability stabilises, the RBI may open up the use of digital Rupee to all banks in the near future.
The eRupee, as introduced by the RBI, provides features like physical cash, including trust, safety, and settlement finality, ensuring immediate settlement of transactions. It differs from UPI and other bank transfer methods as eRupee is stored in a digital wallet, like physical cash, and does not leave an audit trail.
To use the eRupee, users can load their digital currency into a CBDC wallet by debiting their linked bank account. For example, Axis Bank”s eRupee app allows users to load their digital wallets using their linked Axis Bank savings accounts, with various denominations available.
Users can transfer digital currency to individuals with CBDC wallets and can also collect payments through CBDC QR codes in addition to UPI QR codes. Some companies, such as Reliance General Insurance, accept eRupee payments, allowing customers to pay premiums by scanning the digital Rupee QR code.
If users prefer not to use their digital currency, they can redeem the funds in their wallet and have the amount credited back to their linked bank account. To access digital Rupees, banks that are part of the CBDC pilot offer the eRupee app to whitelisted customers in 26 cities. Customers who are not on the whitelist can request whitelisting from their bank, and once confirmed, they can install the app.
The development of eRupee apps by banks is following RBI guidelines and is backed by advanced blockchain technology for enhanced security and efficiency. The apps include multi-factor authentication and encryption to secure transactions and protect user data.
Experts suggest that for the eRupee to succeed in retail adoption, an ecosystem needs to be established. Like the incentives offered by UPI apps, there could be cashback offers and promotions to encourage users to adopt eRupee for various payments. Additionally, improving dispute resolution and refund procedures would boost consumer confidence in using the digital Rupee.
