e-RUPI: India’s new cashless payment medium

The Indian Prime Minister Narendra Modi will launch an electronic voucher based digital payment system "e-RUPI" on Monday.

The National Payments Corporation of India (NPCI), Department of Financial Services, Ministry of Health and Family Welfare, and the National Health Authority jointly developed the payment platform, reports The Indian Express.

How will e-RUPI work?

e-RUPI is a cashless and contactless digital payment system that will be sent to beneficiaries' mobile phones in the form of an SMS string or a QR code. This will function similarly to a prepaid gift card, redeemable at designated accepted locations without the use of a credit or debit card, a smartphone app, or internet banking. e-RUPI will connect service sponsors with beneficiaries and service providers in a digital manner, eliminating the need for a physical interface.

How will these vouchers be issued?

The system was developed by NPCI on its UPI platform, and banks that will be the issuing organisations have been onboarded. Any company or government agency will have to contact one of the partner banks, which include both private and public-sector lenders, with the names of specific individuals and the purpose for which payments are required. The beneficiaries will be identified by their mobile phone numbers, and a voucher issued by a bank to a service provider in the name of a certain individual will only be sent to that individual.

What are the use cases of e-RUPI?

According to the authorities, e-RUPI would ensure that welfare services are delivered in a secure manner. It can also be used to deliver services under schemes such as the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana, which provides drugs and nutritional support to mothers and children, TB eradication initiatives, drugs and diagnostics under the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana, fertiliser subsidies, and so on. Even the commercial sector, according to the government, can use these digital coupons as part of their employee welfare and corporate social responsibility programmes.

What is the significance of e-RUPI and how is it different than a digital currency?

The government is already working on a central bank digital currency, and the introduction of e-RUPI could reveal the holes in digital payments infrastructure that will be required for the digital currency's viability. In effect, e-RUPI is still backed by the existing Indian rupee as the underlying asset, and its purpose distinguishes it from virtual currencies and brings it closer to a voucher-based payment system.

In addition, the future viability of e-RUPI will be determined by the end-use scenarios.

What are the plans for a central bank digital currency (CBDC)?

The Reserve Bank of India had recently said that it has been working towards a phased implementation strategy for central bank digital currency or CBDC — digital currencies issued by a central bank that generally take on a digital form of the nation's existing fiat currency such as the rupee. Speaking at a webinar on July 23, RBI deputy governor T Rabi Sankar said that CBDCs "are desirable not just for the benefits they create in payments systems, but also might be necessary to protect the general public in an environment of volatile private VCs. While in the past, RBI governor Shaktikanta Das had flagged concerns over cryptocurrencies, there seems to be a change of mood now in favour of CBDCs on Mint Street. Although CBDCs are conceptually similar to currency notes, the introduction of CBDC would involve changes to the enabling legal framework since the current provisions are primarily synced for currency in paper form.

Does India have the appetite for a digital currency?

According to the RBI, there are at least four reasons why digital currencies are expected to do well in India: One, there is increasing penetration of digital payments in the country that exists alongside sustained interest in cash usage, especially for small value transactions.

Two, India's high currency to GDP ratio, according to the RBI, "holds out another benefit of CBDCs". Three, the spread of private virtual currencies such as Bitcoin and Ethereum may be yet another reason why CBDCs become important from the point of view of the central bank. As Christine Lagarde, President of the ECB has mentioned in the BIS Annual Report "… central banks have a duty to safeguard people's trust in our money. Central banks must complement their domestic efforts with close cooperation to guide the exploration of central bank digital currencies to identify reliable principles and encourage innovation." Four, CBDCs might also cushion the general public in an environment of volatile private VCs.

Are there global examples of a voucher-based welfare system?

In the United States, there is a system of education vouchers, sometimes known as school vouchers, which is a government-funded certificate for pupils selected for state-funded education in order to build a focused delivery system. These are effectively direct subsidies to students' parents for the sole purpose of educating their children. In addition to the United States, the school voucher system has been implemented in Colombia, Chile, Sweden, Hong Kong, and other nations.