The Reserve Bank of India (RBI) is on a mission to transform digital payments, aiming to make them as seamless as traditional cash transactions. With the introduction of a Central Bank Digital Currency (CBDC), the RBI and the National Payments Corporation of India (NPCI) are spearheading efforts to simplify digital transactions, especially for offline and feature phone-based payments.
The RBI’s initiative encompasses the creation of a sandbox environment for startups to explore diverse CBDC use cases. Despite initial daily transactions numbering in the tens of thousands, the targeted goal of over a million transactions by the year-end remains unmet.
The key ambition behind CBDC is to mirror the ease of cash transactions in the digital realm, according to insiders familiar with the RBI and NPCI’s plans. However, challenges in customer adoption persist as CBDC struggles to differentiate itself from the existing Unified Payments Interface (UPI) framework.
Industry experts and fintech founders emphasize that unlocking new use cases for CBDC will be pivotal in attracting a broader user base. The unique programmability feature of digital currency presents immense opportunities, including targeted benefit transfers, purpose-bound disbursements, and even controlled allowances for specific purposes like children’s canteen expenses.
Despite the potential, banks currently lack the infrastructure necessary to develop products utilizing CBDCs fully. Neeraj Singh, co-founder of Xaults, highlights the importance of building these capabilities within banks to unlock various use cases. Programmability emerges as a driving force behind retail CBDC adoption, particularly in deploying purpose-bound money.
CBDC, distinct from private cryptocurrencies due to government backing and central bank management, represents a significant shift towards sovereign digital currency. The RBI initiated a pilot program for retail CBDC adoption in December 2022, and ongoing discussions among banks aim to evaluate its progress.
However, the industry faces challenges in meeting crucial targets regarding customer adoption, merchant acceptance, and transaction volumes. Banks are urged to incentivize customers to drive adoption, especially since existing solutions like UPI already facilitate person-to-person and merchant payments efficiently.
Unlike the surge witnessed during demonetization and the pandemic, there’s a lack of significant momentum propelling CBDC adoption. Hence, targeted consumer awareness campaigns become imperative to drive adoption.
Ajay Rajan, from Yes Bank, highlights the benefits of CBDC transactions, emphasizing the decluttering of savings accounts for consumers and instantaneous settlements for merchants.
While consumer payments remain smooth through UPI, some sectors like B2B payments offer opportunities for CBDC adoption. Sharat Chandra of India Blockchain Forum believes focusing on areas with less streamlined transaction experiences could be the key to CBDC’s successful integration.
CBDC is still in its proof-of-concept stages, with practical applications gradually emerging. While it may take time to mainstream, its eventual integration could open a realm of possibilities in the digital currency landscape, akin to the widespread usage of debit cards or UPI.
