Context:
Non Banking Institutions Fintechs have begun taking steps to serve the majority of the retail segment of the Central Bank Digital Currency (CBDC) known as the e₹. Specifically, new use cases need to be pushed beyond mere P2P and P2M transactional type use cases. This would enable use of programmable transactions in a wide range of sectors like government welfare schemes, cross border remittances and much more than that.
Key Factors Driving CBDC Adoption for Fintechs
Increasing Use Cases for e₹
- The special use nature of programming CBDC transactions is that it can be used under government schemes like food coupon subscriptions under nutribis as well as hospital bills and fertilizers, extending the scheme beyond simple efficiency gains under DBT (Direct Benefit Transfer).
- Cross Border Remittances
- It will create channels for the cross border payment with the CBDC technology in itself. This would also gain hugely by interoperability CBDC architecture designed by central banks.
RBI’s Approval for Non Banks
- With approval ofMobiKwik and Cred to introduce e₹ wallets for users, this is another step towards making CBDC-R more accessible with third party payment apps.
- Increasing numbers of non bank payment operators will join the CBDC system as this becomes a mass adoption of e₹.
The Challenges That Would Hurdle Widespread Adoption
Emulate Success of UPI
- India has been incredibly successful in P2P and P2M transactions through the Unified Payments Interface (UPI), but it could be extremely challenging to replicate that success when it comes to CBDCs.
- Its “real time payments system” actually dominates P2P and P2M transactions, rendering the e₹’s attempt to garner any significant market share in these segments very much more difficult.
Monetisation and Profitability
- In India’s status quo, monetisation is the sin qua non that is a barrier to entry for fintech companies.
- The present status has no definite path for these enterprises towards generating revenues through the conversion of a CBDC transaction.
- Cross border remittances being the other extremely promising sector for monetisation opportunities, will be exploited once the CBDC ecosystem matures further.
Technical Investment
- Fintechs seeking to offer CBDC services would need to make investments in blockchain technology. e₹ wallets are constructed on a token based digital currency architecture that entails interoperability with the Reserve Bank of India (RBI) and regulated institutions for currency issuance and settlement.
- Real time direct transfer of digital currency tokens occurs between parties for such transactions.
The Future of CBDC Adoption
Programmability for Purpose Based Transactions
- One of the most important advantages provided by CBDCs in comparison to traditional digital payments is that of programmability. What this implies is that e₹ wallet funds will be designated for particular predetermined purposes and cannot be spent on anything else, thus avoiding abuse of the funds.
- There would be plenty of flexibility and protection in terms of e₹ transactions since these can be scripted based on criteria like expiry date, INR, geographic region, and MCC.
- Tempting Consumers For Long Time
- The fintech businesses have a great deal to anticipate in terms of consumer involvement for the long term as obtained due to purpose oriented transactions by the businesses.
