What is UPI QR code-CBDC interoperability?
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Touted as the e-Rupee or Digital Rupee, the RBI Central Bank Digital Currency (CBDC) is an electronic form of sovereign currency. The central bank proposed to issue two versions of the Digital Rupee — CBDC-Wholesale (CBDC-W) and CBDC-Retail (CBDC-R). CBDC-Wholesale is designed for restricted access to select financial institutions while CBDC-Retail can be used by all including the private sector, non-financial consumers, and businesses. Furthermore, the records of CBDC transactions are stored using blockchain technology. In plain terms, CBDC is nothing but a digital replica of the legal tender i.e., paper currency.With the introduction of UPI QR code-CBDC interoperability, customers can now use their digital currency available in their Digital Rupee [CBDC-R] wallet and scan to pay across any UPI QR code, explained Joydeep Dutta Roy, Executive Director, Bank of Baroda. “Similarly, merchants need to only display their existing single QR code, which can accept payments in both CBDC and UPI. CBDC UPI QR interoperability will further accelerate the adoption of Digital Rupee [CBDC-R] among customers and provide wider payment acceptance infrastructure to promote usage of digital rupee at merchant outlets,” he added.
How can you transact using CBDC?
Since Digital Rupee is currently in a pilot phase, only those individuals who got an invite from their banks to join the e-Rupee network can use it. If you have received an invite from your bank to join the Digital Rupee pilot, you need to download the Digital Rupee app of the respective bank from Google Play Store or Apple iOS. Once downloaded, you have to register with your mobile number. Do note that just as the same in UPI registration, here in Digital Rupee registration, the bank-registered mobile number must be physically present in the same device that is being used for registration.
After that, you have to create a new Digital Rupee wallet PIN and choose your authentication method i.e., fingerprint or face unlock (if available on your device). Once logged in, the home screen will show you four options i.e., send, collect, load, and redeem. In the Digital Rupee app, there are denominations of currency, just as in paper currency, and each of the notes has a unique serial number just the same as paper currency.
You have to click on ‘load’ to deposit money from your bank account into the Digital Rupee or CBDC wallet. Do note that, unlike UPI, in Digital Rupee the money is not directly deducted from the bank account, it has to be first loaded into the Digital Rupee wallet and then used. To send money to a mobile number or use a QR code mechanism to send money, click on ‘send’.
What are the banks that enabled CBDC-UPI interoperability to date?
Here is a list of some of the banks which enabled CBDC-UPI interoperability as of September 9, 2023:
- Bank of Baroda (BoB)
- Punjab National Bank (PNB)
- Kotak Mahindra Bank
- HDFC Bank
- Yes Bank
- Axis Bank
- Union Bank of India
How will CBDC UPI QR interoperability help you?
Now that UPI QR code infrastructure is linked with the Digital Rupee, this will help users and merchants alike. When you make a UPI payment to your choice of a merchant such as a vegetable vendor, neighborhood shop, restaurant, etc., you scan a quick response code (QR) and then transact the amount. Similarly, Digital Rupee or CBDC transactions also happen like this i.e., you scan a CBDC QR code and then make the payment.
Till now, Digital Rupee transactions needed a different QR code than UPI, so merchants had to use two QR codes i.e., one for UPI and one for CBDC. Interoperability solves this problem by interlinking the UPI QR code technology infrastructure with CBDC. Hence now a CBDC user can scan UPI QR code to make payments using CBDC.
According to Roy from the Bank of Baroda, “There are several advantages of CBDC-R for the common man. It will add one more secure digital channel that customers can use to transact. It will foster financial inclusion and further improve the welfare distribution of funds. It can also help in the prevention of fraud by tracking end use of funds. Cash dependency in the economy is expected to come down hence the problem of counterfeit fake currency notes is expected to decrease.”
What if a CBDC transaction fails?
It could happen that you were trying to make a payment to a merchant using Digital Rupee and due to any issue the transaction failed. Now in this case, the money could either be lying with the remitter’s bank (i.e. your bank) or the beneficiary’s bank (i.e. the merchant’s).
“In both the cases, the existing reconciliation process for UPI will be followed. If a transaction fails, an instant process of automatic reversal will be initiated by the UPI switch. However, in some exceptional cases, if the amount does not get credited to the receiver or is not refunded back to the sender within T+1 day, the customer can escalate the issue through various grievance portals of banks to raise a chargeback. There is no need for the customer to visit the branch for raising a chargeback complaint,” says Roy from Bank of Baroda.