Non-banking entities such as fintech firms will have to tap into use cases beyond peer-to-peer (P2P) and peer-to-merchant (P2M) transactions to scale up the presence of the retail version of the central bank digital currency (CBDC), which is also known as the e₹, said industry players.
These use cases will enable programmable transactions across domains, including the government’s direct benefit transfer (DBT) schemes, with subsidies restricted to specific purposes such as food coupons, hospital bills, fertilisers, pesticides, and cross-border remittances.
Last month, non-banks such as MobiKwik and Cred received the nod to roll out an e₹ wallet for their users nearly a year after the Reserve Bank of India (RBI) proposed to make CBDC-R (CBDC-Retail) accessible to a larger user base by bringing in third-party payment applications.
More operators in non-bank payments systems are expected to join the bandwagon to extend the e₹.
While the experience of scaling up retail payments through the Unified Payments Interface (UPI) may aid fintechs in expanding CBDC adoption, replicating its success could prove challenging because the real-time payments system already dominates most P2P and P2M transactions.
“The general consensus of CBDC pilots launched globally has been to solve P2P and P2M transactions on the retail side, which UPI has done in India.
"Strong fintech-led use cases for CBDCs are still in their early stages, as most programmable e₹ applications, particularly those tied to central and state schemes, have so far been driven by banks,” said Ranadurjay Talukdar, partner and payments sector leader, EY India.
CBDCs are different from retail payments such as the UPI, and debit and credit cards, having features such as programmability.
The programmability feature allows entities to ensure funds in e₹ wallets are used for designated purposes, precluding their misuse.
It is programmed on parameters including an expiry date, geographical location, merchant category code (MCC), among other things, according to the RBI.
Fintechs are bullish on scaling up offers for customers on the back of experience in building consumer-facing applications at scale.
“Fintechs excel in scaling up business-to-customer (B2C) products by focusing on proven methods of discoverability, user experience, and educating users about new offers.
"Will this take time? Yes. However, we are committed to accelerating CBDC adoption by focusing on key principles such as providing the best experience of taking on board and ensuring flexibility, like enabling CBDC balances to be used for payments by scanning UPI QR (quick-response) codes,” a MobiKwik spokesperson said in an email interaction.
No monetisation, yet
The e₹ R (retail) currency in circulation has a volume of 48.88 million, with the value being ₹883 crore, according to the RBI data.
However, fintechs companies may find it elusive to scale up its presence in the absence of meaningful monetisation from such transactions.
“There is no monetisation for entities processing these transactions.
"There will be long-term opportunities in cross-border remittances space as the central bank creates an interoperable CBDC framework,” Talukdar added.
However, companies said newer features like the CBDC on their platform might enable them to enhance user engagement, which might further drive customer relationships.
“Fintechs stand to benefit in indirect ways, such as increased user engagement, higher transaction volumes, and deeper customer relationships.
"By integrating the CBDC into their platforms, fintechs can enhance user stickiness, drive adoption of other financial products, and strengthen their role in the evolving digital payments ecosystem,” MobiKwik added.
Newer tech
Unlike traditional digital payments, entities offering the CBDC require investment in blockchain technology.
e₹ wallets work on a token-based digital currency model where funds are stored as tokens issued by the central bank. It requires direct integration with the RBI through authorised, regulated entities for issuing the currency and settlement, MobiKwik said.
As a result, such transitions are instant since they involve direct transfers of digital currency tokens.
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