The Unified Payments InterfaceIndia’s instant and interoperable retail payment system — clocked yet another record high in October this year at 7.3 billion transactions amounting to Rs 12.11 trillion. With growth rates of nearly 85 per cent by volume and 67.85 per cent by value over the previous year, UPI continues to lead the country’s now-storied leap to digital payments.
A retail CBDC, or an eRupee, could provide an additional payment option outside the commercial banking system, and reduce concentration of liquidity and credit risks in payment systems mediated through commercial banks. This could be an important argument. In addition to UPI currently dominating digital payments, there are market concentration risks posed by third-party application providers within the UPI system.
As of June this year, Walmart’s PhonePe and Google’s GPay accounted for around 47 per cent and 35 per cent of the market share, respectively. Access to central bank money directly – at the level of consumers, UPI or even third-party application providers – could therefore decongest and reduce such risks.
Another key advantage of an eRupee is expected to be direct access to a safe central bank instrument, given the sovereign guarantee it carries. From a user’s point of view however, while a sovereign guarantee could be attractive, the anonymity offered by cash could be equally important too, even for legitimate cash transactions. Moreover, with ultimate settlement in central bank money and micro-prudential regulation, private digital payment methods are also relatively safe.
Alongside the exponential growth in UPI-driven digital payments and high (though downward trending) cash usage in India therefore, an eRupee may still need to argue its case for retail use. This is important as the widespread adoption of CBDCs is key to their success and to justify the use of public resources for their introduction.
But there are glimpses in the concept note on how the eRupee’s adoption may be powered. The note suggests a layered (with potentially both distributed and centralised ledgers) and modular approach to building a “CBDC tech stack” using APIs (application programming interfaces), digital identities, and signatures, among others. Several of these building blocks, such as Aadhar, e-sign, payment rails including UPI are already available.
Further, suggested use cases include use as a cash alternative in e-commerce, in which India is currently piloting another state-driven innovation in the form of ONDC (Open Network for Digital Commerce). In contrast with large, walled, e-commerce platforms, the ONDC proposes an open, interoperable, and inclusive set of networks as a digital public infrastructure.
The eRupee could therefore ride the wave of online digital payments as a key piece of the larger “digital stack” or ecosystem developing in the country.
The policy tools employed to spur eRupee adoption will also be important considerations. Equally important is whether they will be coercive. For instance, while the fees chargeable from customers or merchants for UPI transactions have been banned, the justification for, and the proof of stimulus provided by such measures to UPI’s growth itself, is unclear. (www.theprint.in)