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What is e-RUPI & and how it is a big leap in the Digital Payments Ecosystem in India

Launched in August 2021 by Prime Minister Narendra Modi, e-RUPI is a new digital payment solution for seamless transfer of funds, without the need for any card, digital payments app, internet access or even a bank account. 

 

e-RUPI is a cashless and contactless payment method done through an e-voucher sent to beneficiaries via QR Codes or SMS strings, which can be redeemed/used for specific purpose only, at the service providers. It connects the sponsors of the services with the users and service providers digitally, with no physical interface required.

 

These vouchers will be both person and purpose/end-use specific, for ex: If they are issued by government for availing any medical service at a particular hospital, then they can be redeemed only for that. In other words, it will work as a closed system PPI.

 

How e-RUPI works?

 

e-RUPI is developed by NPCI on its UPI platform, with onboarded banks as the issuers. The government or any private corporate will approach the partner banks with the details of specific beneficiaries to whom the payments have to be made and the purpose of such payments.

 

Each beneficiary will be uniquely identified basis their mobile number and voucher will then be issued and delivered (in the form of QR Code/SMS) in the name of that beneficiary only. 

 

Objective of e-RUPI

 

e-RUPI is expected to serve the following objectives:

 

  • The long-term vision of e-RUPI is to reach the unbanked population, include them into a formal financial system and reduce the digital gap in the country
  • To provide an equal access to various healthcare, education, and other benefits to each citizen of the country
  • Transparency in transactions, as the end-use of the funds can be easily tracked
  • Will guarantee that the money is used for the purpose for which it was intended, unlike traditional bank account transfer where it is possible that the funds are used for other purposes

 

Further, with the government in the process of establishing a digital currency for the Central Bank, e-RUPI can be used to emphasize the flaws in the current digital payment infrastructure which is crucial for the development of digital currencies in future. 

 

Application of e-RUPI

 

Currently, this is a platform launched as a government initiative for leak-proof distribution of welfare benefits to eligible beneficiaries. It aims to provide services under various schemes of the government including Ayushman Bharat Pradhan Mantri Jan Arogya Yojana and other subsidy programs, etc. 

 

However, in future even private entities can use this voucher-based payment method for providing services to their employees for travel, healthcare, and other such purpose-specific expenses.

 

It can also be used to provide credit to first-time borrowers, where the end-use of funds is specific and thereby evolving the digital lending landscape in the country.

 

A move towards digitalization and introduction of Digital Currency

 

While e-RUPI is in itself not a digital currency, as it is still backed by Indian Rupee as the underlying asset and is purpose specific, it is definitely a move towards introducing digital currency/cryptocurrency in India.

 

Both e-RUPI and cryptocurrency work on similar principle of enabling end to end digital transactions and removing physical intermediaries thereby ensuring transparency, data security and overall reduction in operating costs. 

 

What lies ahead?

 

With the introduction of e-RUPI, it is clear that the government is in support of new digital initiatives, as they expect that India has tremendous potential to change the way they transact and pay for different services. This is supported by increasing adoption of digital payments for small-value transactions, especially by the non-digital customer segment in the country.

 

This backed by India’s high currency to GDP ratio, validates that such digital initiatives and crypto assets/digital currencies can co-exist and position India as the front runner towards forming a complete digital economy. Further, e-RUPI will encourage the use of PPIs in India for better channelization & monitoring of funds, providing an opportunity for Fintechs driving digital payment solutions to design new products build around e-RUPI/digital currencies and such kind of digital solutions.

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Necessity of Revolution in Cross Border Payment process

E-Commerce has broken the political borders and offers products & services across different country borders. This has resulted in a high volume of cross-border goods and payment flows. 

Cross border payments have become an integral part of the day-to-day activities of global businesses. Small Businesses’ zeal to expand their business beyond their country boundaries has been well supported by ongoing digitalisation and high-end technological capabilities across multiple sectors and industries. However, it continues to face significant challenges owing to complicated cross-border mechanisms. The Small businesses face challenges in making or receiving payments internationally because of dealing in different currencies and country specific rules and regulations for international payments. This has created a need for a more agile and frictionless cross border payment framework making cross-border payments as simple as domestic transactions.

 

What are Cross-border payments?  

 

Cross-border payments are defined when both the parties i.e. buyer and sellers involved in the transaction are registered in different countries. Most popular cross border payments methods are wire transfer, credit cards and alternative payment methods- mobile wallet, low value payment method. All interaction for payments happens between buyers and sellers through their respective Banks. The Banks communicate with each other through the SWIFT mechanism when it comes to international transactions. 

In Traditional cross-border payments of correspondent banks, the number of intermediary banks depends on the relationship of the buyer’s and seller bank’s with the correspondent bank. As the number of intermediary banks increases, costs associated with fees and commissions also increase. A Bank can track the transactions till its immediate bank. It becomes difficult for the originating bank to track the transaction once the payment goes to the next bank in the sequence. There is no standard procedure for cross-border payments due to different rules and regulations of each country.  Evolving customer requirements, instantaneous fund transfer, cost reduction, complete transparency and technological innovation has initiated the process to improve cross-border payments as a whole.

 

Cash Flow in Cross-border Payments

 

When a customer makes a purchase, there’s a complete back-end process wherein money gets transferred from the buyer’s bank account to the seller’s bank account. This process becomes very complex when it comes to cross-border payments. In international transactions, currency exchange rates and foreign transaction fees are also involved along with the fees or commission charged by the different bank in the value-chain. In cross border payments domestic and international financial institutions are working together to make the transfer of funds.

 

When a purchase is made, if the buyer’s and seller’s bank have a direct relationship payment is done very easily and seamlessly but in the absence of direct relationship intermediary bank’s role becomes important. These intermediary banks are called correspondent banks.

 

Major Banks across the globe have their own branch or correspondent bank’s branch in another city. In such cases, the funds will first move from the Buyer’s bank branch to the Bank’s own branch or its Correspondent bank’s branch in the seller’s country. This fund is further transferred to the seller’s bank who will then credit the seller’s account. There are many entities, different currencies, exchange rates and transaction fees involved in the single international transaction which make the process slow and opaque in nature. The more the number of correspondent banks in the chain, cost and complexity of transaction keeps on increasing

 

In the Era of Globalised Digital Economy, international payments still felt backward and analogue.

 

A Revolution in Cross Border Payments  

The future of cross-border payments is clear wherein the world requires ability to move funds instantaneously, seamlessly with full transparency and 24*7 access. As the payment industry started moving forward on this journey, an array of new industry initiatives and emerging technologies are transforming the payments process. Fintechs using emerging technologies like blockchain, artificial intelligence, machine learning have started offering faster, agile and seamless solutions to the financial institutions to cater the emerging needs of customers.

 

Currently multiple paths are being used by the payment service providers such as Real-time payments, SWIFT gpi, SWIFT’s transaction manager, artificial intelligence, blockchain and digital currencies- cryptocurrency, central bank digital currency and stable coins. These new ways in cross-border payments would provide opportunities to make cross-border transactions faster, more frictionless, efficient, transparent and cost-effective like domestic transactions. Fintechs act as catalysts for innovation and bring global payments together through various approaches. Banks have started collaborating with fintech to mend their strengths and optimize their offerings by enhancing the payments infrastructure with latest technologies.

 

This revolution will transform the landscape of cross-border payments and empower the end user with full control on sending and receiving international payments at any point in time with complete transparency related to fees/ commissions charged and traceability of transactions in the system.

 

As per Deloitte report – B2B and P2P payments with blockchain would result in a 40% to 80% reduction in transaction costs and take an average of four to six seconds to finalize (compared to two to three days using the standard transfer process).

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