e-RUPI | A voucher System Ahead of Digital Currency in India

Taking the first step towards having a digital currency in India, Prime Minister Narendra Modi launched an electronic voucher-based digital payment system “e-RUPI” — a  cashless and contactless instrument for digital payment on August 2, 2021. It’s going to play a huge role in making Direct Benefit Transfer (DBT) more effective in digital transactions in the country and will give a new dimension to digital governance.

The digital payment solution has been developed with the support of DFS (Department of Financial Services) and NHA (National Health Authority) and is powered by NPCI (National Payments Corporation of India). This seamless one-time payment mechanism enables users to redeem the voucher without a card, digital payments app or internet banking access, at the merchants accepting Unified Payments Interface (UPI) e-Prepaid Vouchers.

The e-RUPI would be shared with the beneficiaries for a specific purpose or activity by organizations via SMS or QR code. This contactless e-RUPI is easy, safe and secure as it keeps the details of the beneficiaries completely confidential. The entire transaction process through this voucher is relatively faster and at the same time reliable, as the required amount is already stored in the voucher.

e-RUPI does not require the beneficiary to have a bank account, a major distinguishing feature as compared to other digital payment forms.   It ensures an easy, contactless two-step redemption process that does not require sharing of personal details either. Another advantage is that e-RUPI is operable on basic phones also, and hence it can be used by persons who do not own smartphones or in places that lack an internet connection.

It is like a prepaid gift voucher that will be redeemable at specific accepting centres without any credit or debit card, a mobile app or internet banking. e-RUPI will connect the sponsors of the services with the beneficiaries and service providers in a digital manner without any physical interface.

How will it be issued?

The system has been built by NPCI on its Unified Payments Interface (UPI) platform and has onboarded 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 banks, 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.

How does it work?

e-RUPI is basically a digital voucher which a beneficiary gets on his phone in the form of an SMS or QR code.  It is a pre-paid voucher, which he/she can go and redeem at any centre that accepts it. For example, if the Government wants to cover a particular treatment of an employee in a specified hospital, it can issue an e-RUPI voucher for the determined amount through a partner bank. The employee will receive an SMS or a QR Code on his feature phone/smartphone.  He/she can go to the specified hospital, avail of the services and pay through the e-RUPI voucher received on his phone. Thus e-RUPI is a one-time contactless, cashless voucher-based mode of payment that helps users redeem the voucher without a card, digital payments app, or internet banking access.

NPCI has partnered with 11 banks for e-RUPI transactions.  They are Axis Bank, Bank of Baroda, Canara Bank, HDFC Bank, ICICI Bank, Indian Bank, IndusInd Bank, Kotak Mahindra Bank, Punjab National Bank, State Bank of India and Union Bank of India. The acquiring Apps are Bharat Pe, BHIM Baroda Merchant Pay, Pine Labs, PNB Merchant Pay and YoNo SBI Merchant Pay. More banks and acquiring Apps are expected to join the e-RUPI initiative soon.

To begin with, NPCI has tied up with more than 1,600 hospitals where e-RUPI can be redeemed. Experts say, in the days to come the user base of e-RUPI is expected to widen, with even the private sector using it to deliver employee benefits and MSMEs adopting it for Business To Business (B2B) transactions.

e-RUPI is not a digital currency

e-RUPI should not be confused with the Digital Currency which the Reserve Bank of India (RBI) is contemplating.  Instead, e-RUPI is a person-specific, even purpose-specific digital voucher. The Indian government is already working on developing a central bank digital currency (CBDC) and the launch of e-RUPI could potentially highlight the gaps in digital payments infrastructure that will be necessary for the success of the future digital currency. In effect, e-RUPI is still backed by the existing Indian rupee as the underlying asset and the specificity of its purpose makes it different to a virtual currency and puts it closer to a voucher-based payment system.

RBI had recently said that it has been working towards a phased implementation strategy for CBDC — digital currency issued by a central bank that generally take on a digital form of the nation’s existing fiat currency such as the rupee in India. 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.

Being a voucher-based payment system, this e-Rupi Digital Payment System is considered quite secure for payment. e-RUPI is expected to play a major role in strengthening DBT and making it more transparent.  Since there is no need for the physical issuance of vouchers, it will also lead to some cost savings as well.