E-Rupi

On 2nd August 2021, Indian Prime Minister Narendra Modi announced the launch of the E-Rupi voucher as a way to revolutionize digital payment mechanisms and aid in the COVID-19 vaccination drive. This led to a rise in questions about the utilization and necessity of the United Payments Interface (UPI) system’s utilization and necessity in the country.

What is E-Rupi?

E-Rupi is a digital initiative to make payments in India. It acts as a pre-paid digital voucher that is received by the paying authority in the form of an SMS or a QR code. It can be thought of as similar to a coupon redeemed at a merchant store, either online or in person. It can be utilized at retail stores, wholesale shops, banks, and hospitals, among others. The customer can redeem these vouchers in exchange for goods or services offered.

How does it work?

The beneficiary of a payment receives an E-Rupi voucher code in the form of either a QR code or an SMS. The service provider then scans the code or uses the SMS received. This, successively, generates a One Time Password (OTP), which is used for verification. Once the transaction is verified, it is successfully processed. If it cannot be verified, the transaction does not take place.

What are the advantages?

1. No need for apps or cards:The redemption part of the process does not require any digital payment apps, cards, or internet banking facilities. This cashless nature of the facility aids in the smooth functioning of the way payments is made in India.
2. No need for a bank account:This makes it more accessible as even residents in rural areas who do not have active bank accounts can utilize this facility.
3. Lower cost of payment:The cost of payment is also cut down, thus leading to higher levels of liquidity and improved working capital management.
4. Easier to track transactions:The digital mechanism of this initiative makes it easier to track beneficiaries and transactions, thus aiding in fraud detection.
5. Two Factor Authentication: The two-step process of executing a payment ensures higher security.

What are the drawbacks?

The public’s main concern about the E-Rupi initiative is that some people see it as a tool for financial surveillance. All payments can be notified to the authorities, cutting down on privacy. Similarly, this data can be sold to private organizations, thus leading to data harvesting.

While the framework of the system has not been set in stone, owing to India’s lack of  robust legislation for data protection, it creates a grey area for these specific issues.

Simultaneously, while it resolves the issue of lower coverage of banking facilities in rural areas, it does not take into consideration the absence of a mobile phone facility in certain areas. As per the Telecom Regulatory Authority of India (TRAI), rural teledensity stood at just over 60% in 2021. Hence, it is imperative to note that the lack of telecom facilities available in the areas this mechanism was intended for is the most notable drawback of E-Rupi. Alongside the lack of mobile network facilities present, the issue of potential frauds pertaining to mobile number registrations and delivery of services linked to it are likely to see a rise.

At present, the initiative is focused on Government related payments, primarily payment for COVID-19 vaccinations. Some other areas for utilization include TB eradication programs, agriculture subsidiaries, Pradhan Mantri Jan Arogya Yojana, Child Welfare Schemes, among others. The Government plans to expand to private sector employee welfare programs, and corporate programs post the successful implementation in the public sector.

This rollout is expected to lead to a rise in discussions surrounding the need for stricter legislation on data protection. However, the main focus is to allow the hitherto offline customer segments to embrace digital payments as well.