By | November 25, 2023
Interoperability between e-Rupee and UPI: A Gamechanger Move - News18

In the changing landscape of digital payments, there are some defining moments that are redefining how we transact. One such moment occurred on April 11, 2016, when the National Payments Corporation of India (NPCI), under the guidance of the Reserve Bank of India (RBI), introduced the Unified Payments Interface (UPI). This innovation promised to revolutionize digital payments in India.

Fast forward to December 1, 2022 – RBI introduced the initial pilot phase of the retail digital rupee, or e-rupee, a central bank digital currency (CBDC).

The Convergence of UPI and CBDC: A New Era in Payments

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Earlier this year, RBI Deputy Governor T Rabi Sankar unveiled an exciting development – the central bank’s active pursuit to enable CBDC transactions through the UPI channel. This interoperability will be facilitated through UPI QR codes, which mirror the familiar process of conventional payment methods.

The result? Enable merchants who currently accept bank-to-bank or credit-to-bank UPI payments by scanning the UPI QR code to seamlessly accept digital rupee (e₹) payments through customer CBDC wallets. The marriage of CBDC and UPI is poised to redefine how merchants and customers transact.

The journey towards widespread adoption

E-rupee, in its current phase, is not yet widely available to the masses in India. However, RBI is working diligently to make it a reality for all. Currently in the pilot phase and available to a limited number of users in select cities, the RBI is rigorously testing the technology and partnering with banks to develop e-rupee wallets and payment systems.

The potential impact of e-Rupee is huge – it could revolutionize digital payments in India and play a critical role in promoting financial inclusion.

The offering, envisioned by the RBI, will take the form of a digital token, representing legitimate currency in the same denominations as paper currencies and coins currently in circulation. Banks will act as intermediaries and facilitate their distribution and users will engage in transactions through digital wallets provided by participating banks, accessible on their mobile devices.


Transactions using e-Rupee can include both person-to-person (P2P) and person-to-merchant (P2M) transfers. When paying merchants, individuals can use QR codes displayed at their establishments. Similar to physical cash, e-Rupee embodies qualities like reliability, security and decisive settlement. However, like physical currency, it will not accrue interest and can be converted into other monetary forms, such as bank deposits.

The Game Changer Factor

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RBI’s vision for interoperability between UPI and e-rupee aims to improve accessibility, convenience and acceptance of e-rupee, benefiting both customers and merchants. Customers can now use their existing digital rupee wallets from the pilot project to make payments and merchants can now leverage this interoperability to accept payments, add flexibility and enhance the customer experience.

This integration not only simplifies customer journeys but also streamlines processes for merchants. Merchants will not require separate setup for e-rupee; their existing UPI QR codes can accept e-rupee payments, making transactions smoother and hassle-free.

It is worth noting that while e-rupee transactions currently lack a tax component, future taxation is being considered by the government.

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The phased strategy for CBDC implementation

As the RBI examines the adoption of CBDCs, it does so with a cautious and considered approach. A phased implementation strategy is pursued to ensure a seamless transition. The RBI is conducting extensive studies to evaluate the pros and cons of CBDCs, with a focus on responsible introduction.

This step-by-step approach involves several steps. A prototype based on recommendations from an internal working group is being developed, with technical specifications provided to technology partners. Rigorous testing within a controlled operational environment will follow, evaluating functionality and performance under various scenarios. The insights gathered from testing will guide the final design of the CBDC.

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Shape the final design through important lessons

Large-scale pilots involving diverse users are on the horizon. These pilots will represent different demographics, including income levels, literacy levels, regions, genders and age groups. The results and lessons learned from these pilot projects will be instrumental in shaping the final CBDC design, ensuring its inclusiveness and effectiveness in a diverse country like India.

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  • In a digital payments landscape that continues to evolve, the interoperability between UPI and CBDC represents a crucial milestone. As data reveals a growing appetite for digital transactions, the introduction of uniform QR code interoperability between CBDC and UPI promises to streamline transactions, making them more accessible and convenient for both customers and merchants. This innovation represents a transformative shift towards a cashless and inclusive financial future for India.

    (The Managing Director (Domestic) at In-Solutions Global Ltd)

    Edited by: Mohammad Haris

    first published: November 24, 2023, 6:04 PM IST

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