The Reserve Bank of India (RBI) launched its pilot project on central bank digital currency or e-Rupi on December 1. While the pilot project will be carried out in four cities of Mumbai, New Delhi, Bengaluru, and Bhubaneswar, soon it is likely to be available of residents across India. But what is exactly the difference between UPI and e-Rupi?

Here are the five major differences between UPI and e-Rupi/CBDC

1. No need to have a bank account

Experts pointed out that to carry out payments through UPI, individuals need to have a bank account and often a functioning debit card, but for accessing the e-Rupi wallet, there will be no need to have such a bank account. “With a retail CBDC, people should be able to transact without any bank involved (like physical cash) and it's a digital transfer from people to people direct minus a bank intermediary. It will have the same denominations as physical cash,” said Vishwas Patel, Executive Director, Infibeam Avenues Ltd, which owns CCAvenue, a payment gateway brand.

2. Anonymity can be maintained

Transactions in digital rupee may offer the same anonymity as cash transactions. The Reserve Bank has asked lenders not to report low-value transactions made through the digital rupee. Once the Central Bank Backed Digital Currency Retail is transferred to customer wallets, banks will not track or report these transactions, bankers said. Currently, most cash transactions over Rs 50,000 require customers to disclose their permanent account number. While no limit has been set for digital rupee transactions, it is believed that retail transactions up to Rs 50,000 will not be reported. Transactions in excess of Rs 2 lakh will have to be reported for tax purposes. Experts suggest that the move will ensure the virtual currency will offer a similar degree of anonymity associated with paper money for business exchanges below a value threshold.

3. No need for physical currency backup

UPI transactions are backed by physical currency. This means the payment will not go through if the user’s bank account does not have enough funds. The e-rupee, however, can be used for digital payments in lieu of currency/cash. “The e-rupi is issued by RBI and is a legal tender in itself. It need not necessarily be backed by physical currency. The UPI transactions, on the other hand, are completely backed by a physical currency,” added Sudhir Pai, Executive Vice President and Chief Technology & Innovation Officer (CTIO), at Financial Services, Capgemini.  

4. Single handle for all

 Depending upon the banks and platforms, the UPI handle or ID varies. Even linking two different platforms with the same bank account may generate different UPI ID, but such will not be the case for e-Rupi. “The digital rupee will be operated by RBI and not by bank intermediaries in the case of UPI where each bank has a different UPI handler,” added Kunal Chowdhry, CEO, Apollo Singapore Investments. E-rupi will have a single public key (address).

5. Transaction without a smartphone

Experts believe that another major benefit of using the e-rupee is that it will allow offline transactions which can be carried out on feature phones, promoting its adoption in rural and remote areas as well. Since the e-rupee voucher will be shared with the beneficiary through an SMS or QR code. This will enable its use in rural and remote areas as well where internet connectivity can be a problem. And if it's in the form of an SMS, anyone without a smartphone can utilize it as well.