UPI QR Code-Central Bank Digital Currency interoperability: How does it work and how do customers benefit?

Source: The post is based on the article “UPI QR Code-Central Bank Digital Currency interoperability: How does it work and how do customers benefit?” published in Indian Express on 6th September 2023

What is the News?

Several banks are enabling the interoperability of Unified Payments Interface’s (UPI) Quick Response (QR) code with their Central Bank Digital Currency(CBDC) or e₹ application.

What is Interoperability?

Interoperability is the technical compatibility that enables a payment system to be used in conjunction with other payment systems.

It allows system providers and participants in different systems to undertake, clear and settle payment transactions across systems without participating in multiple systems.

What is QR Code?

A QR code consists of black squares arranged in a square grid on a white background, which can be read by an imaging device such as a camera.QR contains information about the item to which it is attached.

QR code is an alternate contactless channel of payments.It allows merchants or businesses to accept payments from their customers directly into their bank accounts.

What is UPI QR code-CBDC interoperability?

Interoperability of UPI with the digital rupee means all UPI QR codes are compatible with CBDC apps. 

Initially, when the pilot for the retail digital rupee was launched, the e₹-R users had to scan a specific QR code to undertake transactions. 

However, with the interoperability of the two, payments can now be made using a single QR code.

How will this benefit customers and merchants?

The interoperability of UPI and CBDC will ensure seamless transactions between a customer and merchant without having the need to switch between multiple digital platforms.

It will allow a digital rupee user to make payments for their daily needs, such as groceries and medicines, by scanning any UPI QR codes at any merchant outlet.

Even merchants are not required to keep a separate QR code to accept the digital rupee payments.They can accept CBDC payments on their existing QR code.

How will interoperability help in increasing CBDC adoption?

Currently, UPI is a widely used payment method and the interoperability between it and the CBDC will propel the adoption of the digital rupee.