Why Should I Use the Digital Rupee as a Retail Banking Customer?

Introduction

Recently, I noticed an icon for the Digital Rupee in my Axis Bank app under the “Payments & Transfers” tab.

It got me thinking: why should I, as a regular retail banking customer, bother with this new digital currency? I already have my online banking app, debit cards, credit cards, and UPI apps like Google Pay. What’s the point of adding another option to the mix?

Plus, I also wrote about the RBI’s CBDC about two years back in 2022. I thought, how does this “Digital Rupee” tie back to the RBI Central Bank Digital Currency (CBDC)?

Let’s explore and find answers to these intuitive questions about the digital rupee in this blog post.

1. What Is the Digital Rupee?

The Digital Rupee, or e₹, is India’s version of a Central Bank Digital Currency (CBDC).

It’s a digital form of our regular rupee, issued and backed by the RBI.

Think of it as cash, but in electronic form, stored in a digital wallet.

Is Digital Rupee same as Bitcoin? No, it is not like Bitcoin or other cryptocurrencies. Why? Because cruptocurrencies are decentralized and volatile.

The Digital Rupee is a legal tender, just like the notes in your wallet, and it’s worth exactly the same as physical cash.

The RBI launched its retail CBDC pilot in December 2022, and banks like Axis Bank are now rolling it out through apps like the Axis Mobile Digital Rupee app.

2. Why create a digital version of the rupee?

It’s a step toward a digital economy, and banks are jumping on board to make it accessible to us.

But to make this happen, RBI want Indian Rupee to show the following characteristics:

• The RBI wants to modernize payment system.
• They also wanted to reduce the costs of handling physical cash.
• On top of that, they also wanted to make transactions more secure and efficient.

3. How Does It Work for Me?

Using the Digital Rupee is simple.

• Step #1: Download the Axis Bank Digital Rupee app.
• Step #2: Link it to your savings account.
• Step #3: Authenticate it with your debit card details.
• Step #4: Once the set up is finished, the user will get a digital wallet where he/she can store e₹ tokens. These tokens come in denominations like 50 paise, ₹1, ₹5, ₹10, and so on, just like physical currency.

You can send money to friends, pay merchants, or store funds in your wallet.

Transactions happen instantly via mobile numbers, QR codes, or even UPI. The banks, like Axis, have integrated the Digital Rupee with UPI for seamless payments.

But the only thing is, you must use the downloaded Digital Rupee to make the payments (see step #1 above).

Sounds familiar, right?

It’s a lot like using UPI or your banking app.

But I think you still want to know, what makes the Digital Rupee special for us, who are already juggling multiple payment options – UPI, cards, cash, etc?

4. Why Should I Care About the Digital Rupee?

Most of us are happy with UPI or cards for daily transactions.

To be honest, we do not need any more payment options, right? But why RBI is still coming up with CBDC (Digital Rupee)?

Digital Rupee has some unique advantages that make it worth considering. Here’s why I think it could be a game-changer for retail customers like us.

1. Inclusive Nature: Not everyone has a bank account in India. The Digital Rupee doesn’t always require one. For instance, special-purpose e₹ can be issued by organizations for specific uses, like government subsidies, even for people without bank accounts. This could be a big deal for rural areas or underserved communities. For non-bank account holders, special-purpose Digital Rupees can be issued by government for specific uses, like subsidies. These are pre-loaded tokens distributed directly to a digital wallet. Now, this digital wallet can be set up on a smartphone without requiring a bank account. This type of non-bank account wallet set-up is facilitated by authorized entities or programs.
2. Super secure: The Digital Rupee uses blockchain technology. It means that every transaction is recorded on a secure ledger. This reduces the risk of fraud or counterfeiting. Like physical cash that can be lost or stolen, digital Rupee does not carry this risk. For example, if I’m paying a vendor at a local market, I can scan a QR code and know the transaction is safe and final.
3. Fast and efficient: Payments are instant, with no delays like you sometimes get with bank transfers. Imagine sending money to a friend across the country, it’s done in seconds, no middleman needed. This is because the Digital Rupee is a direct claim on the RBI. Hence, the transactions are settled immediately.

5. The Offline Advantage

Here’s something even cool.

The Digital Rupee can work offline.

For example, the Axis Bank’s app has an offline CBDC feature that lets you transfer or receive funds without internet access.

Imagine being in a remote village with no network. In such places, you can still pay a shopkeeper by tapping your phone, thanks to technologies like NFC or Bluetooth.

This is a huge plus in areas with spotty connectivity, where UPI or online banking might fail.

I was skeptical at first. Why would I need this when UPI is so convenient?

But think about those moments when your internet drops, say, in a crowded metro or during a network outage. The Digital Rupee could save the day.

I have personally felt a use case of offline payment system. One day I went for a hospital check-up, and the physiotherapy department was in the basement. In that location, mobile network/internet was zero. I wanted to make the UPI payment, but was no possible. Even in such situations, offline digital rupee payments will work.

6. How Does Digital Rupee Compare to UPI, Cards, and Online Banking?

• UPI, like Google Pay, is a payment system that moves money between bank accounts.
• Debit and credit cards are tied to your bank or credit line.
• Online banking apps handle everything from transfers to bill payments.

The Digital Rupee, though, is actual digital cash. It’s not just a way to move money, it is money, issued by the RBI.

Unlike UPI, which depends on your bank account, the Digital Rupee can be stored separately in a wallet. You can load up to Rs.1 lakh daily and redeem it back to your account.

There is a per-transaction limit of Rs.25,000.

It’s also more direct since it doesn’t rely on intermediaries like banks for settlement.

Compared to cards, it’s less prone to physical theft, and unlike cash, it’s traceable, which adds a layer of security.

But there’s also a disadvantage of Digital Rupee.

The Digital Rupee doesn’t earn interest.

Like your money parked into your savings account earns interest, money parked in Digital Rupee wallet warns not interest.

There is another issue with Digital Rupee. While it’s very secure, but its traceability might raise privacy concerns for some. I mean, who wants every transaction tracked?

Still, the RBI ensures that there are robust encryption to protect your data.

7. Understand The Ecosystem – Digital Rupee | RBI | Banks

The Digital Rupee is the RBI’s brainchild.

It is designed to complement physical cash, not replace it.

The RBI issues e₹ tokens and distributes them through banks like Axis, HDFC, and SBI.

These banks act as Token Service Providers (TSPs). These banks then pass the tokens to us through digital wallets.

The RBI’s pilot program, started in 2022. As of now, 15 banks, including Axis, are part of this initiative, and some have even made e₹ interoperable with UPI.

What does it mean?

For example, I can use my Axis Bank Digital Rupee app to pay at a merchant’s UPI QR code. This integration makes it feel less like a new system and more like an extension of what I already use.

The RBI’s goal is to make the Digital Rupee a seamless part of our payment ecosystem while reducing the costs of printing and managing cash.

Did you know it cost Rs.4,984 crore to print currency in 2021-22?

8. Digital Rupee is a Programmable Money

One thing that I found most interesting about Digital Rupee is the “Special Purpose Digital Rupee” or Programmable CBDC.

This is digital money programmed for specific uses.

For instance, if the government gives out subsidies for farmers, it can issue e₹ that can only be spent on agricultural supplies.

This ensures funds are used as intended, reducing misuse.

As a retail customer, I might not use this feature directly, but it shows how versatile the Digital Rupee can be.

9. Challenges Associated With Digital Rupee

I won’t sugarcoat it, there are hurdles.

• The Digital Rupee relies on digital devices and some level of tech-savviness.
• Not everyone has a smartphone or reliable internet, especially in rural India.
• Plus, setting up the infrastructure for CBDC isn’t cheap for banks or the government.
• There’s also the privacy angle. Transactions are traceable, which might bother those who prefer cash for its anonymity.
• Another thing, with UPI dominating 46% of all digital transactions, do we really need another payment system?

I love the convenience of Google Pay, so convincing me to switch to the Digital Rupee app will take some doing.

But the offline feature and RBI backing make it tempting.

Will I start using the Digital Rupee?

I’m leaning toward giving it a shot.

The offline payment option is a big draw, especially for emergencies. Plus, it’s eco-friendly, less cash means less printing and environmental impact.

Conclusion

The Digital Rupee is not just another payment option. It’s an innovation (like UPI).

It’s a step toward a future where money is digital, secure, and accessible to all.

While I’m happy with UPI and my cards, the e₹’s offline capabilities, RBI backing, and potential for financial inclusion make it worth exploring.

Will it replace my Google Pay? Probably not anytime soon.

But it’s a solid backup, especially for those moments when connectivity fails or I want a direct, secure way to pay.

What do you think? Are you ready to try the Digital Rupee, or are you sticking to your tried-and-tested payment methods? Drop your thoughts in the comments.