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UPI QR Code-Central Bank Digital Currency interoperability

  • Published
    6th Sep, 2023

Recently, a few commercial banks, including State Bank of India, Bank of Baroda, IDFC First Bank among others, have introduced UPI interoperability on their digital rupee application.

About the initiative:
  • With banks enabling the interoperability of Unified Payments Interface’s (UPI) Quick Response (QR) code with their central bank digital currency (CBDC) or e-Rupee application, the 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.
  • The digital rupee issued by the RBI, or the CBDC, is a tokenised digital version of the rupee.
  • 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).

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 between payment systems contributes to achieving adoption, co-existence, innovation, and efficiency for end users.

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-Rupee 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 e-Rupee 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.
  • 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.

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.

UPI and Benefits:

  • 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.
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