The Reserve Bank of India (RBI)'s Central Bank Digital Currency (CBDC) may turn out to be the only long-term digital transaction to remain free of cost, with enhanced security compared to other forms of digital assets, said several payment industry bodies and fintech start-ups amid the launch of the first pilot for the retail digital Rupee starting December 1.
While wholesale CBDC, i.e., e₹-W, is for select financial institutions to use for interbank transfers, retail CBDC, i.e., e₹-R is for businesses and individuals for use in peer-to-peer (P2P) and person-to-merchant (P2M) payments.
“Retail CBDC will be a game changer. While the Unified Payments Interface (UPI) provides the features of fund transfer, this can become 100X bigger since it replaces cash transactions with digital currency directly issued by the RBI," said Navin Surya, Non-Executive Chairman of the Fintech Convergence Council of India.
"This is the exact digital version of cash transactions. Which means that in the future this may be the only form of digital transaction that's free of cost, same as cash transactions. This also comes with a sovereign guarantee since the money is RBI’s responsibility, unlike a bank’s in case of the digital transactions we do currently," Surya added.
While announcing the pilot on November 29 , the RBI had said that e₹-R will be implemented in phases in partnership with a few banks in select cities to begin with, and will be scaled up later.
The first four banks that will be part of the pilot are the State Bank of India (SBI), ICICI Bank, Yes Bank, and IDFC First. Four more banks — Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank — will join the pilot subsequently, RBI had said.
The pilot will be implemented among a small group of customers and merchants in Mumbai, New Delhi, Bengaluru, and Bhubaneswar. In the next phase it will be extended to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla.
Fintech experts say that this is a step in the right direction.
"The launch of the e-Rupee is a very positive step towards bringing resilience, efficiency, and innovation to the payments system. Along with reducing the operational costs associated with physical cash management, it will also enhance settlement efficiency, spur innovation in cross-border payments, and offer the public the same benefits as any virtual currency without the risks associated with it," said Sandeep Ghosh, Group Country Manager, India & South Asia, Visa
Ghosh said that Visa will work with the RBI and other industry partners in driving the adoption of the e-Rupee in time to come.
"The e₹-R will be legal tender backed by the central bank and will be interoperable with existing bank accounts. Key use cases may be programmable payments and cross-border payments, besides the benefits of a lower cost of printing and managing currency, instant payments, finality of settlement, and enhanced safety," said Mihir Gandhi, Partner & Leader – Payments Transformation, PwC India.
Programmable payments are automated payments that are initiated any time certain conditions are met, removing the need for human intervention. For example, if a vendor is to be paid for every 100 barrels of oil delivered, that would happen automatically without people needing to find out if the delivery has been done, calculate the amount based on the Dollar exchange rate, get approvals, and then instruct the bank to pay.
The retail pilot implementation is meant to test the creation, distribution, and transaction/settlement of the digital currency for both P2P and P2M transactions at physical locations. Customers will be able to create a wallet with digital e₹-R tokens and can use it for various purposes.
Fintech startups have welcomed the move and said that the CBDC will help accelerate India's digital payment ambitions.
“When it comes to payments at merchant outlets, QR codes are already working wonders. With e₹-R also being supported via QR codes at these outlets, we hope to see greater adoption. Our integration with retailers across 20,000+ PIN codes, including with kirana stores which serve as a multi-utility point for consumers in the remote corners of Bharat, will further accelerate the government's goal of a cashless nation backed by e₹-R," said Anand Kumar Bajaj, Founder, MD & CEO, PayNearby.
"Operationally, digital currencies will have many benefits like zero currency loss (like losing a Rs. 10 note, say), reduction of transaction costs, greater transparency in the movement of money, etc. Most importantly, it will significantly increase financial inclusion," said Anuj Kacker, Co-Founder, Freo.
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