Introduction of UPI QR Codes for CBDC Transactions

Context: The Reserve Bank of India (RBI) is set to implement interoperability between its central bank digital currency (CBDC) and the Unified Payments Interface (UPI) by the end of this month, according to Deputy Governor T. Rabi Sankar.

What Is CBDC?

CBDCs are a digital form of a paper currency and unlike cryptocurrencies that operate in a regulatory vacuum, these are legal tenders issued and backed by a central bank.

What is UPI?

UPI allows instant money transfers between bank accounts using a person’s UPI ID as a common platform.
launched in 2016 as Mobile First digital payments platform
UPI enables 24/7 immediate money transfer through mobile devices, making cashless payments faster and easier.
UPI is globally unique with complete interoperability, allowing seamless transactions on both the ‘send’ and ‘receive’ sides.
UPI allows scheduled and convenient payment for Peer-to-Peer collect requests.
Developed by: National Payments Corporation of India (NPCI) under the guidance from RBI.
- NPCI, an umbrella organisation for operating retail payments and settlement systems in India, is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007.
- It’s a non-profit company providing infrastructure for banking payment and settlement systems in India.
RBI envisions UPI to achieve 50% annualized growth as per Payment Vision 2025.

Interoperability: UPI QR Codes for CBDC Transactions

Customers will have the convenience of using a single QR code for both UPI and CBDC transactions.
13 banks adopted interoperability, RBI aims for 20-25 banks to participate in the program.
Interoperability allows CBDC users to make transactions even if the merchant does not have a CBDC account.
In such cases, the payment will be directed to the merchant’s UPI account.

Cost-Effectiveness and Cross-Border Payments

CBDC transactions are expected to be cost-effective, particularly for cross-border payments.
Cross-border transaction costs currently exceed 6 percent, causing financial burdens.
CBDC can significantly reduce these costs.
The RBI expects CBDC to facilitate transactions among multiple banks, reducing dependence on a few institutions and promoting fair practices.

FAQs Related with Introduction of UPI QR Codes for CBDC Transactions

Ques 1. What is the purpose of introducing UPI QR codes for CBDC transactions?

Answer: Single QR code enables convenience for customers, streamlining UPI and CBDC transactions for enhanced user experience.

Ques 2. How does interoperability benefit CBDC users and merchants?

Answer: Interoperability enables CBDC users to make transactions even if the merchant does not have a CBDC account. Payment directed to merchant’s UPI account ensures seamless CBDC transactions and expands usage.

Ques 3. How many banks have adopted the interoperability program, and what is the RBI’s goal?

Answer: Thirteen banks have already adopted the interoperability program, and the RBI aims to encourage the participation of 20-25 banks. This broadens the availability of interoperable services, promotes widespread adoption, and enhances the accessibility and convenience of CBDC transactions.

Introduction of UPI QR Codes for CBDC Transactions,Introduction of UPI QR Codes for CBDC Transactions

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