In April, Reserve Bank of India Governor Shri Shaktikanta Das announced plans to expand its retail central bank digital currency (CBDC) pilot beyond banks. Last month the central bank said payment providers would join the digital rupee pilot this quarter. Now Reuters reported that five payment providers have applied, citing sources. They are Google Pay, Walmart-backed PhonePe, Cred, Amazon Pay and Mobikwik.
PhonePe is India’s leading payments app, followed by GooglePay. Together they make up 85% of transactions and value for UPI, India’s successful instant payment solution, which processes almost 14 billion transactions monthly. Not mentioned among the digital rupee applicants is third ranked player PayTM, which has a 6% UPI market share. Cred is fourth, AmazonPay is sixth and Mobikwik is sixteenth, but the UPI figures drop off significantly beyond the big three.
If the CBDC follows UPI, then banks might end up playing second fiddle to the payment apps. Three banks rank in the top ten for UPI apps – Axis, ICICI and Kotak Mahindra – with the largest in the fifth spot. However, the three banks combined have a market share of less than one percent. The percentages reference the user interface used to initiate payments. UPI is for interbank payments, so the money comes from bank accounts.
A Reuters source also stated that the erupee pilots are likely to stay in the pilot stage for a couple of years, which makes sense.
Advanced CBDC functionality takes time
From the early days, the central bank managed expectations, noting that the CBDC was unlikely to compete with the well-established UPI payment infrastructure. Without more advanced functionality, there’s no incentive for consumers to switch. And if providers offer cash incentives, the switch could be temporary, as has happened in China with its digital yuan red envelope incentives.
Some of the distinguishing functionalities of India’s CBDC include offline payments and programmable payments, which are still in the early stages. Unlike rolling out the app, both may take a little time to come to fruition.
Plus, both the Ministry of Finance and central bank believe that the CBDC killer app will be cross border payments, especially for remittances. Even more so than the other two features, cross border payments take time to develop through collaboration with other jurisdictions.
At the end of last year, payments spiked to one million for a single day, with a concerted push to meet the goal. However, they have since fallen bank to 100,000 per day, increasing at the end of the month with banks using the digital rupee to pay benefits. The transaction levels are based on press sources and have not been officially reported recently. Instead, the central bank noted growth in consumer wallets (9%) and merchants (5%) over the past three months.
