RBI's e-rupee: Transforming India's Financial Landscape

What is the RBI’s e-rupee (CBDC)?

The e-rupee, or Central Bank Digital Currency (CBDC), is a groundbreaking digital currency issued by the Reserve Bank of India (RBI). This digital form of sovereign currency is designed to replace physical cash, providing a secure and instantaneous way to conduct transactions electronically.

Fintech’s Role in e-rupee Adoption

Fintech companies such as CRED and MobiKwik are at the forefront of the e-rupee's integration. By partnering with Yes Bank, these firms have developed e-rupee wallets, making the digital currency more accessible through user-friendly mobile platforms. This initiative extends the reach of the RBI's digital currency beyond conventional banking systems.

The Progress of the e-rupee Initiative

• As of June 2023, the RBI’s retail CBDC pilot has successfully onboarded 5 million customers and 420,000 merchants across the country.
• The wholesale CBDC is under trial for interbank settlements within financial markets.
• Fintechs are actively embedding e-rupee wallets into their ecosystems, promoting practical, real-world usage.

e-rupee vs. UPI Payments

While UPI facilitates transactions between bank accounts, the e-rupee acts as a direct digital equivalent of physical cash, issued by the RBI. Unlike UPI, e-rupee transactions can occur without the necessity of a bank account. Here are some scenarios illustrating the differences:

• UPI transaction: A user transfers ₹500 to a shopkeeper via UPI, with funds moving through bank infrastructures.
• e-rupee transaction: A user sends ₹500 in e-rupee directly to a merchant's digital wallet, bypassing banks entirely.

Why e-rupee Does Not Require a Bank Account

Functioning like physical currency in digital form, the e-rupee does not need to be stored in a bank account. Users can manage transactions through a CBDC wallet, akin to handling cash. This offers several advantages:

• Financial Inclusion: Enables individuals without bank accounts to participate in the digital economy.
• Faster Transactions: Eliminates the need for interbank settlements.
• Enhanced Security: With RBI's direct issuance, the e-rupee is insulated from bank failures.

Benefits of Using an e-rupee Wallet

• Instant Transactions: Facilitates peer-to-peer and peer-to-merchant payments without intermediaries.
• Programmable Money: Supports features like auto-refunds and scheduled payments.
• Reduced Cash Dependency: Advances a cashless economy while preserving the benefits of cash.
• Secure and Anonymous: Offers privacy in certain transaction designs, unlike UPI.

Major Uses of the e-rupee

• Retail Transactions: Suitable for everyday purchases and bill payments.
• Government Payments: Facilitates Direct Benefit Transfers without intermediaries.
• Cross-border Trade: Plans to utilize CBDC for international dealings.
• Corporate Payments: Handles large-scale transactions without banking delays.

Fintech-Based e-rupee Wallet Features

CRED: Allows beta users to engage in e-rupee transactions, with future updates supporting merchant payments and PIN-less transactions for amounts below ₹500.

MobiKwik: Provides a comprehensive e-rupee wallet with transaction capabilities up to ₹10,000 per transfer and ₹50,000 daily.

Challenges in Expanding e-rupee Adoption

• Limited Awareness: Many remain unfamiliar with CBDC usage.
• Merchant Adoption: Requires businesses to upgrade infrastructure.
• User Incentives: Lacks strong incentives like UPI's cashback offers.

The Future of the e-rupee in India

Fintech companies are committed to embedding the e-rupee into everyday digital transactions. Achieving seamless and cost-effective operations akin to cash or UPI will be crucial for widespread adoption. As the RBI extends its pilot programs, the e-rupee is poised to become a pivotal element in India’s digital economy.