With banks enabling the interoperability of Unified Payments Interface’s (UPI) Quick Response (QR) code with their central bank digital currency (CBDC) or e₹ application, users of retail digital rupee will be able to make transactions by scanning any UPI QR at a merchant outlet. Merchants can also accept digital rupee payments through their existing UPI QR codes.
This integration of UPI and CBDC is part of the Reserve Bank of India’s (RBI) ongoing pilot project on pushing the retail digital rupee (e₹-R).
So, what is interoperability?
Interoperability is the technical compatibility that enables a payment system to be used in conjunction with other payment systems, according to the RBI. Interoperability allows system providers and participants in different systems to undertake, clear and settle payment transactions across systems without participating in multiple systems. Interoperability between payment systems contributes to achieving adoption, co-existence, innovation, and efficiency for end users.
And what is UPI QR code-CBDC interoperability?
Interoperability of UPI with the digital rupee means all UPI QR codes are compatible with CBDC apps. Initially, when the pilot for the retail digital rupee was launched, the e₹-R users had to scan a specific QR code to undertake transactions. However, with the interoperability of the two, payments can be made using a single QR code. The digital rupee issued by the RBI, or the CBDC, is a tokenised digital version of the rupee. The e₹ is held in a digital wallet, which is linked to a customer’s existing savings bank account. UPI is directly linked to a customer’s account.
How will it benefit customers and merchants?
The interoperability of UPI and CBDC will ensure seamless transactions between a customer and merchant without having the need to switch between multiple digital platforms.
It will allow a digital rupee user to make payments for their daily needs, such as groceries and medicines, by scanning any UPI QR codes at any merchant outlet.
Even merchants are not required to keep a separate QR code to accept the digital rupee payments. They can accept CBDC payments on their existing QR code.
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“We will take advantage of the UPI network to increase transactions in CBDC. There will be one QR code, and you can scan the QR code using the CBDC app. If the merchant has a CBDC account, the payment will be settled in the CBDC wallet. If a merchant does not have a CBDC account, then there will be an option to make payment using UPI,” RBI’s Deputy Governor T Rabi Sankar said in July this year.
What is a QR code?
A Quick Response (QR) code consists of black squares arranged in a square grid on a white background, which can be read by an imaging device such as a camera. It contains information about the item to which it is attached, according to the National Payments Corporation of India (NPCI). QR code is an alternate contactless channel of payments. It allows merchants or businesses to accept payments from their customers directly into their bank accounts.
Also Read | Targeting 1 mn CBDC transactions per day by end 2023: RBI Deputy Governor T Rabi Sankar
And how will interoperability help in increasing CBDC adoption?
Currently, UPI is a widely used payment method, and the interoperability between it and the CBDC will propel the adoption of the digital rupee.
At present, more than 70 mobile apps and over 50 million merchants accept UPI payments. In July, RBI Deputy Governor Sankar said there were 1.3 million customers and 0.3 million merchants using the retail digital rupee. The daily per-day e₹-R transactions in July were around 5,000-10,000.
SBI said the seamless integration of CBDC with UPI will enhance the acceptance and utilization of digital currencies in everyday transactions.
“This integration will be a game changer for the digital currency ecosystem,” it said.
How many banks have enabled UPI and CBDC interoperability?
A few banks, including State Bank of India, Bank of Baroda, Kotak Mahindra Bank, Yes Bank, Axis Bank, HDFC Bank and IDFC First Bank, have introduced UPI interoperability on their digital rupee application.
FAQs
It will allow a digital rupee user to make payments for their daily needs, such as groceries and medicines, by scanning any UPI QR codes at any merchant outlet. Even merchants are not required to keep a separate QR code to accept the digital rupee payments. They can accept CBDC payments on their existing QR code.
What is the Interoperability of UPI and CBDC? ›
And what is UPI QR code-CBDC interoperability? Interoperability of UPI with the digital rupee means all UPI QR codes are compatible with CBDC apps. Initially, when the pilot for the retail digital rupee was launched, the e₹-R users had to scan a specific QR code to undertake transactions.
How does the UPI QR code work? ›
One of the key features of UPI ID QR codes is the ease of generation. Merchants can generate unique QR codes by linking their UPI ID to a QR code generator tool. Once developed, these QR codes can be displayed at the point of sale, allowing customers to scan and make payments directly from their UPI-enabled apps.
What is the difference between central bank digital currency and UPI? ›
While UPI functions as a decentralised peer-to-peer payment interface that enables real-time transactions between banks, digital rupee acts as the digital counterpart of the national currency, issued and regulated by the central bank.
How does central bank digital currency work? ›
A central bank digital currency (CBDC) is a form of digital currency issued by a country's central bank. It is similar to cryptocurrencies, except that its value is fixed by the central bank and is equivalent to the country's fiat currency. Many countries are developing CBDCs, and some have even implemented them.
What is interoperability in UPI? ›
One of the key features of UPI is interoperability, which means that users can send and receive money across different UPI apps without any hassle. For example, a user can pay a merchant using Google Pay even if the merchant is using PhonePe or Paytm.
What is the CBDC QR code? ›
Banks are enabling the interoperability of Unified Payments Interface's (UPI) Quick Response (QR) code with their central bank digital currency (CBDC) or e₹ application. Interoperability is the technical compatibility that enables a payment system to be used in conjunction with other payment systems.
How do digital QR codes work? ›
QR codes work by arranging a series of black and white pixels into a unique pattern that encodes a string of data. When scanned, the pattern of the qcode can be translated into human-readable information.
Is UPI QR code safe? ›
As soon as the user enters their UPI pin, the fraudsters gain access to their account and can transfer a hefty sum." Security agencies say that most scams happen on QR codes sent on WhatsApp or Instagram.
What is the limit of UPI QR scan? ›
As per NCPI, the transaction limit is Rs.1 lakh per day. However, if payment is to be made for educational institutions and healthcare, the limit is Rs.5 lakhs. From bank to bank, the maximum limit for daily transfer through UPI varies from Rs. 25000/- to Rs. 1 lakh.
Possibility of breaching user privacy and creating a surveillance state: Depending on the design of the CBDC system, there is a risk that user privacy could be compromised or that the system could be used for surveillance purposes.
What is the difference between CBDC and digital currency? ›
The main difference between a central bank digital currency and a cryptocurrency is that a CBDC is – as its name implies – issued by a central bank. This means it is also a “direct liability” of the central bank, as the World Economic Forum's Digital Currency Governance Consortium White Paper Series points out.
Which country has digital currency central bank? ›
The Bahamas, Jamaica, and Nigeria have already introduced CBDCs. And more than 100 countries are in the exploration stage. Central bankers in Brazil, China, the euro area, India, and the United Kingdom are at the forefront.
Will CBDC replace cash? ›
2. Will a U.S. CBDC replace cash or paper currency? The Federal Reserve is committed to ensuring the continued safety and availability of cash and is considering a CBDC as a means to expand safe payment options, not to reduce or replace them.
What is an example of a central bank digital currency? ›
A central bank digital currency (CBDC) is money that a country's central bank can issue in digital (or electronic) form, rather than as physical money, such as cash and coins. For example, in the UK this digital money (a “digital pound”) would be issued by the Bank of England.
What is the difference between central bank and digital currency? ›
The central bank and Commercial bank are the important financial institutions of a country. The central bank is an institution that is responsible for the monetary policies of the country while the commercial bank provides banking and other financial services to the general public.
Which is the first bank to launch CBDC UPI interoperability? ›
HDFC Bank was the first bank in India to make interoperable QR codes available to its merchants and consumers, according to the HDFC Bank website.
What does the term interoperability mean? ›
Interoperability refers to the degree to which a software system, devices, applications or other entity can connect and communicate with other entities in a coordinated manner without effort from the end user. This is often related to things like data access, data transmission and cross-organizational collaboration.
Which countries are linked to UPI? ›
NPCI International Payments Limited (NIPL) and Lyra announced UPI adoption in France. India's UPI has gained global traction with initiatives in Bhutan, UAE, Malaysia, Singapore, and others. UPI collaborations extend to regions like Europe, Japan, and the US, fostering cross-border transactions.
Which blockchain is used in CBDC? ›
Blockchain technology bring unique advantages to a CBDC. Ethereum in particular is the most production-ready blockchain to support CBDC requirements in terms of scalability and privacy.
