Interoperability of UPI and CBDC: Promoting Retail Digital Rupee Adoption

  • The combination of Unified Payments Interface (UPI) Quick Response (QR) codes and Central Bank Digital Currency (CBDC) applications is poised to transform digital transactions in India.
  • This strategic integration allows retail digital rupee users to transact effortlessly utilising UPI QR codes, making transactions convenient for both customers and merchants.

Interoperability Explained

  • The technical compatibility that allows multiple payment systems to work together is referred to as interoperability.
  • It enables diverse payment systems to perform transactions across platforms, increasing end-user efficiency, innovation, and adoption.

Explained: UPI QR Code-CBDC Interoperability

  • As part of its ongoing pilot project for the retail digital rupee (e-R), the Reserve Bank of India (RBI) is driving this interoperability between UPI and CBDC.
  • Initially, e-R users needed a special QR code to complete transactions.
  • Because of UPI-CBDC interoperability, any UPI QR code can now be used with CBDC apps.
  • The RBI-issued digital rupee is a tokenized digital form of the rupee that can be saved in a digital wallet linked to a savings bank account.
  • UPI, which is directly linked to a user’s account, can now transact with CBDC.

Advantages for Customers and Merchants

  • The union of UPI and CBDC has various advantages:
  • Customers will be able to utilise a single QR code for many purchases, eliminating the need for multiple platforms.
  • Daily necessities such as food and medications can be purchased using any UPI QR code.
  • CBDC payments can be accepted by merchants without the need for separate QR codes.
  • Transactions are more streamlined and efficient, which improves the user experience.

Increasing CBDC Adoption

  • The UPI-CBDC interoperability takes advantage of UPI’s extensive use to increase digital rupee adoption.
  • UPI payments are already accepted by more than 70 mobile apps and 50 million retailers.
  • Integrating UPI with CBDC simplifies transactions, boosting the utility of the digital rupee.
  • State Bank of India, HDFC Bank, and Axis Bank have all implemented UPI interoperability on their digital rupee platforms.
  • This seamless connection is likely to alter the digital currency ecosystem, increasing acceptability and usage.

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