E-RUPI: How will it affect the payment system in India?

This particular digital token does not require someone to have a bank account or any particular mobile app.

Shortly on the heels of RBI’s note on central bank digital currency, e-RUPI has been launched as a government initiative to seamlessly pass on welfare benefits to eligible beneficiaries.

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This digital payment instrument is in the form of pre-paid digital vouchers, which is directly delivered to the phones of beneficiaries, and may be used for purchase of specific goods or services, but can’t be converted to cash or transferred to another person.

“E-RUPI is a purpose-specific payments instrument that works with smartphones and features and can be used without a bank account. These capabilities significantly increase the chances of its adoption. E-RUPI can also be used by lenders to give credit to borrowers where the usage of the funds can be specified. This is great to open credit for first-time borrowers,” said Abhinav Sinha, CEO, Eko.

According to Think360 Co-founder Monish Salot, “The instrument allows users to make digital payments – not just in a traditional digital sender to digital receiver way, but also in a digital sender to offline receiver manner.”

“The announcement has caused a lot of stir – starting with the idea that it is a person and “purpose” specific method, and the possible role it has to play in the distribution of welfare benefits. One could also think of it as a digital token that allows the beneficiary to avail a specific service/ product from pre-authorised service providers,” he added.

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As this particular digital token does not require someone to have a bank account or any particular mobile app, it works even for the non-smartphone using population. With nearly 80 per cent of the population in India having mobile connection, e-RUPI may revolutionise the digital payment system in the country.

Explaining what is so revolutionary about it, Salot said –

• The payments can be made via a QR code (smartphone users) or an SMS string based e-voucher (non-smartphone users). Traditionally, the non-smartphone population has struggled to adopt digital payments. This allows them to gradually use and accept digital methods, which augurs well for the years to come.
• The instrument can be purpose specific. For instance, it could be for COVID vaccines at government centers. In such a scenario – the benefit is accrued to the beneficiary only when they avail the service.
• In the traditional direct-benefit transfer to a bank account – it is possible that the specific services were not really availed and the money was used for other purposes. E-RUPI, if implemented and tracked well, can have significant implications for digital adoption, transparency, and social initiatives.

“It is in essence, a multi-party configuration for enabling digitisation of offline transactions. The sender (say, the Government of India) creates an e-RUPI which is sent to the beneficiary, but it needs to be simultaneously authorised by an intermediary (such as a bank). In the usual cash economy, once the cash is in the customer’s hand, the bank loses visibility of the end purpose. However, in the case of e-RUPI the bank knows the purpose, and authorises the redemption of this voucher against the same purpose. This brings in the next party – the service provider,” said Salot.

“For example, rather than using the money elsewhere, beneficiaries may be prompted to avail the vaccine jabs. Similarly, a section of such benefits can be focused on education for children, low-cost healthcare administration, community development, and so on,” he added.

Salot points out the following benefits of e-RUPI that we can expect:

• Drive greater adoption of digital payments in a segment of population that has remained digital-immune.
• Better last mile delivery of welfare benefits is one of the biggest areas, I am personally enthused about – be it education, nourishment, healthcare, and much more.
• Transaction transparency – cash is an opaque instrument with no trails. All digital payment innovations promote greater transparency. To that extent, e-RUPI should too.
• Reduced cash utilisation, especially when an institution is distributing benefits. This can have significant adverse tailwinds for companies like Sodexo, if organisations use a part of their kitty to issue purpose specific e-RUPI – such as learning allowance on specific portals.

“These are exciting times in the Indian Fintech Ecosystem, and it’s great to see that the government has come up with a rather interesting fork to an accepted payment method, which allows even the hitherto non-digital customer segments to embrace digital payments,” said Salot.

Explaining the difference between e-RUPI and cryptocurrencies, WazirX CEO Nischal Shetty said, “e-RUPI is not like other crypto. It’s not based on blockchain but emphasises one of the core messages of blockchain-based tokens. It enables end-to-end digital transactions without any physical intermediary, leading to lesser operating costs.”

“Also, e-RUPI heralds data privacy and security, just like cryptocurrencies, as intimate personal details are not required during the redemption of vouchers. Overall, this bodes well for digitising India’s financial stack,” Shetty further said.