- 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.
Source: https://government.economictimes.indiatimes.com/news/digital-india/central-bank-digital-currency-sbi-idfc-make-digital-rupee-interoperable-on-upi/103389662