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e-RUPI PAYMENT SYSTEM
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- The story: India has launched the e-RUPI payment system, a QR code or SMS string-based e-voucher, delivered to the mobile of the beneficiaries. It is a cashless and contactless person- and purpose-specific digital payment solution.
- Features: The e-RUPI only requires the beneficiary to have a mobile phone to which the sponsor can share the pre-paid voucher (via simply an SMS or a QR code). Its key application is to offer a leak-proof welfare service using a one-time payment mechanism. It eliminates middlemen by ensuring that the sponsors of the service connect directly to the beneficiaries. The platform does not require the beneficiary to have a bank account – which sets it apart from other digital payments methods.
- NPCI: The system is built by NPCI on its UPI platform, and has onboarded many banks that will be the issuing entities. Any corporate or government agency will have to approach the partner banks, which are both private and public-sector lenders, with the details of specific persons and the purpose for which payments have to be made. The beneficiaries will be identified using their mobile number and a voucher allocated by a bank to the service provider in the name of a given person would only be delivered to that person.
- What PM said: The Prime Minister said that besides being person-specific, the e-RUPI is also purpose specific. It will ensure that the benefit will be used only for the purpose that it is being provided.
- Voucher system: The e-RUPI is similar to a digital gift card, replacing physical vouchers. It can be used by private companies, government institutions and other service providers to extend benefits with the help of its partner banks. The e-RUPI is not a currency, as it's not a bearer instrument that can be transferred and further used. It is personalized and purpose-specific – it’s not money.
- When employers want to extend tax-free benefits, they provide employees with physical vouchers to spend on buying essentials. The government is now doing this similar thing at a larger scale.
- While this can work parallel to existing platforms, it cannot replace any of those. The UPI is a far more versatile instrument and has helped reduce the use of cash to a large extent. The e-RUPI will not come anywhere near to replacing any current channels.
- Good for government: Whenever the government wants to extend monetary benefits like Direct Benefit Transfers (DBT) to migrants during the pandemic, tracking the beneficiaries is always a challenge. Now it can share the funds with e-RUPI by just having a database. The elimination of a bank account helps ensure that the beneficiary is not dependent on anyone to avail the benefits.
- CBDC: The RBI has said it is 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. As per RBI, 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 flagged concerns over cryptocurrencies, there seems to be a change of mood now. 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.
- Clarification: e-RUPI is not the same as a CBDC (central bank digital currency). Here money is not being created, but is already available with the benefit provider which wants to transfer to the platform for the beneficiary. In CBDC, there will be money creation.
- The entire purpose of CBDC sets it apart from e-RUPI, but there are commonalities. The only similarity between cryptocurrencies and e-RUPI is that both do not rely on middlemen, transfers happen directly to whoever it is intended for.
- The immediate use case is for corporates to extend vaccination to employees, so this has come at the right time as vaccination against COVID-19 is the need of the hour.
- Worldwide: In the US, there is the system of education vouchers or school vouchers, which is a certificate of government funding for students selected for state-funded education to create a targeted delivery system. These are essentially subsidies given directly to parents of students for the specific purpose of educating their children. In addition to the US, the school voucher system has been used in several other countries such as Colombia, Chile, Sweden, Hong Kong, etc.
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