Digital Rupee Desperate For Takers Over A Year After Launch

When the Reserve Bank of India (RBI) launched the central bank digital currency (CBDC) in December 2022, Tanmoy Khanra, a 29-year-old IT professional from Bengaluru, was fascinated with the fact that it was a digital currency based on blockchain technology. 

Khanra downloaded the Digital Rupee By ICICI app in March 2023 out of curiosity to experiment with making payments with CBDC. A year later, Khanra has stopped using it because he finds Unified Payments Interface (UPI) to be more user friendly. 

“I’m still unable to figure out why I should use it. Using CBDC has no additional benefits. Rather, I find it problematic to load the wallet and choose the currency to load,” said Khanra.  

Digital Rupee or (e₹) or eINR or E-Rupee is a tokenised digital version of the Indian currency meant to provide an additional option for Indians to make digital transactions. 

Khanra isn’t alone in being confused about why one should use digital rupee instead of UPI transactions with the initiative failing to take off significantly even a year after the launch. So much so, that there were reports that the RBI was planning to tokenise government assets like customer deposits and government bonds to increase usage.

 

 

A little more than a year after the launch of the E-Rupee, The Core has found that even those who use E-Rupee do so sporadically and prefer to use UPI instead. The RBI’s purpose of introducing CBDC was to reduce reliance on physical cash transactions by promoting digital currency. But, by the time it was launched, consumers had already spent significant time using digital transactions through UPI. RBI’s Digital Payment Index or DPI shows that digital payments have gone up exponentially in the past few years. RBI-DPI which was at 217.74 in September 2022, just a few months before the launch of CBDC rose to  418.77 in March September 2023. However, UPI is the main driving force behind the surge in DPI. Between December 2022 (the month of the launch of CBDC) and September 2023, the volume of UPI transactions went up by nearly 35% from 782.949 crore monthly to 10,55.569 crore a month, as per the data of the National Payment Council of India (NPCI). 

At a time when Indian payment wallets are under scrutiny, thanks to RBI’s crackdown on market leader in the sector Paytm Payments Bank, the E-Rupee could have been a viable alternative. But users say UPI provides a more convenient user experience. 

 

UPI vs CBDC 

Since the pilot run for E-Rupee began in 2022, banks in India have launched Indian banks have launched their respective digital currency apps. Currently, 13 banks offer CBDC wallets, out of which only three are public sector banks. Much like a payment wallet, customers can load E-Rupees in their wallet to make transactions. 

The restrictive nature of transactions through these E-Rupee wallets also stops customers from completely switching over. “I can only do transactions to merchants’ accounts using CBDC, but I am not allowed to use CBDC while I am making transactions to any personal account,” said Neelanjit Sarkar, a Delhi-based content writer.

While payments can be made using QR codes, both the receiver and sender need to have an E-Rupee wallet to receive or make payments, for person-to-person transactions. However, individuals can make payments to merchants or retailers using CBDC by scanning a regular payment QR code of the retailer. So if a store has a UPI QR code linked to a merchant account, users can transfer money using their E-Rupee wallet. But if a merchant's UPI QR code is linked to a savings account, then CBDC payments to it are not allowed.

In terms of usage, the customer sees little difference in using UPI and E-Rupee, even though UPI is only a payment method, while E-Rupee is actual currency. 

The number of downloads for these banking apps have been measly – only 1% or less then the total number of downloads. For example, on Google Play store, the number of downloads for the mainapps of the State Bank of India, Bank of Baroda, and Kotak Mahindra Bank are more than 5 crore each while the number of downloads for their respective CBDC wallets is around 5 lakh or less. 

Barely Meeting Targets

The RBI had two goals when launching E-Rupee — reducing the printing cost of currency and enabling digital cash  transactions even without the internet. The volume of currency notes in circulation went up from 13053.26 crores in 2022 to 13621.37 crores in 2023, according to RBI data. At the moment, making cashless transactions without an internet connection hasn’t become reality either.  

When asked, the RBI declined to comment on whether the cost of printing cash has reduced since the introduction of E-Rupee. And there is no publicly available data that shows how the cost of printing cash has changed since the launch of the E-Rupee. 

The E-Rupee reportedly managed to meet its pilot target of 1 million transactions a day by December 2023, but it remained far behind UPI transactions. Reuters had reported three anonymous sources as saying that this was achieved as some Indian banks, state-run and private, had disbursed employee benefits during that month to the CBDC wallets of employees, rather than their salary accounts. 

According to data from the National Payments corporation of India, there were more than 387 million UPI transactions per day on an average in December 2023.

Are banks doing enough to encourage the use of E-Rupee by its customers? 

“The bank has been aggressively promoting CBDC among the customers and employees alike. As a bank, we do promotions wherever necessary. It was done for UPI as well but the other factors such as demonetization and a gap in the market exponentially increased the reach of the promotions/product of UPI,” said Sumoth C, vice president and head-digital at the Federal Bank. As of now, there are only around 50 thousand downloads of the Federal Bank Digital Rupee app on Google Play Store. 

Sumoth said that there had been steady growth of E-Rupee usage and with upcoming innovations such as the programmable CBDC and offline CBDC, “We can expect an exponential increase in adoption of CBDC among the citizens.”

 

Optimism Continues 

Aside from general transactions, the RBI had also launched CBDC-Retail (CBDC-R) and CBDC-Wholesale (CBDC-W).  While the one for retail is meant for usage of every such as private sector, nonfinancial consumers and businesses, CBDC-W was meant for select financial institutions for the settlement of interbank transfers and related wholesale transactions. 

E-Rupee in wholesale and retail in circulation stood at Rs 16.39 crore as at end of financial year 2022-23, according to the RBI Handbook of Statistics on the Indian Economy 2022-23. The RBI is yet to come out with the data for 2023-24. Reuters reported the total stood at  25,000 a day by the end of October in 2023.

“Most of the MSME owners are not even aware of such facility, leave alone their transactions through CBDC-W. Banks didn’t popularise it or educate them and also entrepreneurs are not sure what will be the advantage of using it. If there are no significant additional benefits and if the cost of such financing is not coming down, then the small businesses won’t use it,” said KE Raghunathan, National Chairman of Association of Indian Entrepreneurs.

However, banks and NPCI are optimistic about the usage and adaptability of CBDC. Some banks are offering cashback on transactions and even sending periodic communications to eligible customers to educate them. 

“CBDC is still at a nascent stage. Even for UPI, in the initial few years after it was launched in 2016, hardly people were using it. It is only after demonetisation people started using it gradually and after COVID it spiked. Similarly, we need to wait for the CBDC to have mass acceptance,” said Subhradeep Bhatacharya, head product and incharge product development and transformation at NPCI Bharat Bill Pay. 

 

Also Read: RBI’s Paytm Crackdown: Loyal Users Jumping Ship Doesn’t Bode Well For Its Business