It’s been over two years since then Reserve Bank of India (RBI) introduced India’s blockchain-based digital rupee. But even after two years of testing, India retail Central bank digital currency (CBDC) is struggling to find strong adoption in the country’s growing digital payments landscape.
This is mainly because RBI simultaneously pushed to popularize India’s flagship Unified Payments Interface (UPI), a global success story and an example of effective Digital Public Infrastructure (DPI).
“In India, the digital rupee pilot has yet to achieve mainstream adoption among India’s vast population, especially in the presence of the widely adopted Unified Payments Interface (UPI). As of May 2024, the e-rupee in circulation is at 3.23 billion rupees, up from 1 billion rupees in December 2023. However, this remains a small fraction of the 35.4 trillion rupees in banknotes currently in circulation,” he said International Monetary Fund (IMF) report.
While the RBI believes CBDC is the future of moneyIt is also focused on taking advantage of new technologies.
The central bank was successful reaching a million every day Transactions for its retail CBDC pilot until December 2023, after banks were told to offer incentives to users and part of bank employees’ salaries were paid with the e-rupee. However, daily transactions for retail CBDC have fallen to around 100,000, data collected by a Reuters report in June showedciting sources it did not identify.
“The popularity of instant payment systems like UPI poses a challenge to retail adoption of the e-rupee,” said Rohan SharanFounder and chief executive of Timechain Labsan on-chain application development company used BSV blockchain Technology.
“The ease, speed and zero cost of UPI transactions mean that e-Rupee offers unique advantages such as offline payments, programmable features or enhanced security to attract users. Without clear incentives, CBDC retail adoption could continue to struggle .The RBI may need to create specific use cases where CBDCs offer tangible benefits over UPI,” Sharan told CoinGeek.
RBI started its first digital rupee pilot in the wholesale segment on November 1, 2022, to settle secondary market transactions in government securities. It started the pilot with nine banks – State Bank of India (NASDAQ: SBKFF), Bank of Baroda, Union Bank of India, HDFC Bank (NASDAQ: HDB), ICICI Bank (NASDAQ: IBN), Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC (NASDAQ: HSBC).
Those Retail digital rupee pilot started December 2022, and users could trade through a digital wallet offered by participating banks and stored on mobile phones or devices.
In March 2024, RBI Governor Shaktikanta Das will be appointed said that India had around 4.3 million retail CBDC users, while an additional 400,000 merchants also used the e-rupee.
“While the number of (CBDC) transactions has reached a high of 1 million per day, we still see preference for UPI among retail users. We naturally hope that this will change in the future,” Das said in May.
“We have used the existing merchant infrastructure on UPI to facilitate CBDC transactions. We have also enabled the interoperability of CBDC with UPI,” Das added.
Not only India
To be fair, the adoption of CBDCs remains slow in most regions, not just India, despite several countries launch or pilot them.
The Bahamas, Jamaica and Nigeria have launched national CBDCs, while China, the Eastern Caribbean Monetary Union (ECCU) and India have initiated large-scale pilots, according to the IMF report.
In the Bahamas, the adoption of the Sand dollars is hampered by low merchant participation and limited integration with the banking system. ECCU’s DCash faced similar issues, including poor user education and a lack of merchant network development.
Jamaica is JAM-DEX struggled with low adoption due to insufficient public education and retailer onboarding challenges. Nigeria eNaira adoption was slow, with 98.5% of wallets remaining unused a year after launch, partly due to limited access and limited home use.
China’s e-CNYthe largest CBDC pilot, has seen widespread use in various sectors, with 120 million wallets and 16.5 billion yuan in circulation by June 2023. However, it still represents only a small part of China’s total money supply and lags behind private Payment applications such as AliPay and WeChat Pay, the IMF report said.
UPI sees 10-fold growth while E-rupee struggles
During India struggling to raise public support for its e-rupee, UPI has seen a tenfold increase in volume in the last four years, from 12.5 billion transactions in 2019-2020 to 131 billion transactions in 2023-2024, or 80% of all digital payment volumes.
In October 2024, UPI processed 16.58 billion transactions, marking an increase of 45% compared to October 2023. Introduced in 2016, UPI offers instant money transfers and is a single mobile application for accessing various bank accounts.
“With its unparalleled convenience and familiarity, UPI may overshadow CBDC in retail adoption. Many users may resist the transition to a new payment method,” pointed out Amit Kumar Guptaa legal practitioner at the Supreme Court of India.
“Public awareness initiatives could highlight CBDC’s unique advantages, such as offline capabilities. Distinct advantages over UPI could help CBDC carve a niche,” Gupta said.
According to Sharat ChandraFounder of EmpowerEdge Ventures and a Startup Enabler, RBI’s push for instant payment systems like UPI may actually hinder retail adoption of CBDCs.
“As users get used to seamless transactions through UPI, they may be less inclined to adopt a new digital currency unless it offers multiple benefits. Current data shows a decline in CBDC retail usage, suggesting that without compelling incentives or unique features, widespread acceptance may remain elusive,” Chandra told CoinGeek.
Overlapping functions
RBI’s focus on real-time payment systems like UPI and the e-rupee could create user confusion and a conundrum. UPI’s existing infrastructure and user base makes it a powerful competitor to CBDCs, leading to potential overlapping functions between UPI and CBDCs, especially for small, everyday transactions. Raj KapoorFounder of India Blockchain Alliance (IBA).
“Given UPI’s convenience, no-fee model, and broad acceptance among merchants, it may reduce the immediate need for CBDCs in retail payments. Users may not see enough incremental benefits from CBDCs because UPI already offers real-time, near-instant transfers, Kapoor told CoinGeek.
Another issue with CBDC adoption is that while CBDCs offer several features such as programmable money and secure digital assets, they require extensive public awareness and onboarding.
“The fast and smooth use of UPI could delay the adoption of CBDC, as it would take a significant effort to convince users to switch to an entirely new payment system. Furthermore, the integration of CBDCs into the regulatory framework of India could face hurdles and may not necessarily be seamless While UPI’s government support provides a seamless user experience, CBDCs will additionally legally Considerations and infrastructure are required to ensure smooth integration across multiple platforms, which slows down adoption,” Kapoor added.
RBI efforts
Central Bank of India announced plans to make its e-rupee accessible to more retail users by including non-bank payment system operators to provide CBDC wallets. The move is expected to test how resilient India’s CBDC platform is in handling multi-channel transactions.
Among other initiatives, the RBI said it is investigating the possibility of using the e-rupee commercial papers (CPs) and Certificates of Deposits (CDs) on a trial basis. CPs are short-term debt instruments issued by companies to raise funds, while CDs are fixed-income investment instruments that can be taken out by investors from financial institutions and commercial banks.
The RBI too said it seeks to enable additional functionalities of programmability and offline capability and CBDC retail payments. While programmability is expected to facilitate transactions for specific and targeted purposes, offline functionality allows transactions in areas with poor or limited internet connectivity.
The central bank too started discussions with the Hong Kong Monetary Authority (HKMA), the US Federal Reserve, and the international payment platform SWIFT to detect cross-border payments for CBDCs. The RBI said it is looking for the digital rupee in the Call money market and plans to use CBDCs as tokens for call money settlement.
miles to go
“The interoperability of CBDC with UPI would be a step in the right direction; however, it still faces obstacles such as limited merchant acceptance and lack of widespread awareness. In addition, CBDC wallets are not yet available through non-bank payment operators such as PhonePe or Google Pay, which limits accessibility,” Kapoor pointed out.
The lack of compelling incentives to switch to CBDC over existing payment systems such as UPI or bank transfers is also hindering adoption. While the government is pushing for a wider rollout and has also considered integrating CBDC into offline payment solutions, it still faces competition from more user-friendly, fast and widely accepted systems.
“2025 will have to come with more aggressive awareness campaigns, wider distribution methods, and stronger incentives will be necessary to compete with UPI’s entrenched position in the market. However, without significant improvements in the CBDC ecosystem, its adoption by retailers could continue fight,” Kapoor added.
See: India will be the frontrunner in digitization
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