UPI QR Code-Central Bank Digital Currency interoperability

September 6, 2023

GS Paper III Indian Economy

Context:

Banks have enabled the interoperability of Unified Payments Interface’s (UPI) Quick Response (QR) code with their central bank digital currency (CBDC).

About Digital Rupee

The digital rupee issued by the RBI is a tokenized digital version of the rupee.
The e₹ is held in a digital wallet, which is linked to a customer’s existing savings bank account. UPI is directly linked to a customer’s account.

About QR code

A Quick Response (QR) code consists of black squares arranged in a square grid on a white background, which can be read by an imaging device such as a camera.
It contains information about the item to which it is attached, according to the National Payments Corporation of India (NPCI).
QR code is an alternate contactless channel of payments. It allows merchants or businesses to accept payments from their customers directly into their bank accounts.

About Interoperability:

UPI QR code-CBDC interoperability: All UPI QR codes are compatible with CBDC apps.
Interoperability is the technical compatibility that enables a payment system to be used in conjunction with other payment systems.It allows system providers and participants in different systems to undertake, clear and settle payment transactions across systems without participating in multiple systems.
Interoperability between payment systems contributes to achieving adoption, co-existence, innovation, and efficiency for end users.
Interoperability of the two payments can be made using a single QR code.

Benefit of UPI QR code-CBDC Interoperability:

Seamless Transaction: It will ensure seamless transactions between a customer and merchant without having the need to switch between multiple digital platforms..
Ease of Payment: It will allow a digital rupee user to make payments for their daily needs, such as groceries and medicines, by scanning any UPI QR codes at any merchant outlet.
Faster Adoption of Digital Rupee: Currently, UPI is a widely used payment method, and the interoperability between it and the CBDC will propel the adoption of the digital rupee.

News Source: The Indian Express