All You Need to Know About the e-RUPI
Earlier today, the Prime Minister unveiled e-RUPI, a new digital payment mode in India.
E-RUPI is being hailed as an instrument that will bring transparent and “leak-proof” character to the delivery of welfare services in India and enable millions of unbanked citizens to receive the benefits of Government schemes.
And it is not just the Government but also the private sector that is also poised to use e-RUPI as part of its employees welfare and corporate social responsibility (CSR) programmes.
After all, what’s not to like about a cashless digital payment solution that links the sponsors of services with the beneficiaries and service providers with minimum contact and physical interface?
Let’s take you through its specifics and also offer some insight into the success of schemes resembling e-RUPI around the world. In addition, we also attempt to clarify how it differs materially from a digital currency.
Digital Voucher Defined
E-RUPI is a prepaid e-voucher powered by UPI. The voucher works by authentication through QR-code or SMS.
What this essentially means is that instead of putting cash in somebody’s bank account, the Government (or any service provider) issues an electronic voucher to the mobile of the beneficiary after verifying their identity.
Consider it similar to Sodexo coupons or meal passes which are passed on directly to citizens who don’t have access to credit or debit cards, online banking, payment apps or even a bank account. The citizens can thus redeem the voucher and receive the benefit at the point of delivery (PDS shops, hospitals, schools etc.) through a simple one-time payment mechanism (i.e. OTP). The whole process is therefore cashless and contactless.
The payment can only be processed after the service has been provided to the beneficiary. Plus, since it’s a prepaid voucher, the beneficiary has access to the money (or other benefits) whenever required.
The system has been developed by the National Payments Corporation of India (NPCI) on its UPI platform. As of now, three categories of entities have been approved to issue these vouchers by the RBI — banks, payment service providers and entities that hold licenses for prepaid instruments.
FYI: There is only a select list of banks currently which are live with the e-RUPI. Moreover, banks (and assisting fintech companies — PineLabs and BharatPe, for instance) which issue the vouchers may not always be the ones who accept them too.
Use Cases of e-RUPI
The first and foremost expectation from e-RUPI is the transfer of small-ticket subsidies like food, ration, fuel etc. The payment limit for a one-time non-transferable single transaction on the voucher is set at ₹10,000 ($135) currently.
The Government has indicated that the vouchers could be used for transferring benefits under schemes related to healthcare (medication, nutritional support, TB eradication, drugs, diagnostics) and agricultural subsidies as well. Clearly the play here involves heightened emphasis on targeted and bespoke delivery of socio-economic benefits.
Most importantly, the Government wants the private sector to join in the exercise by relying on e-RUPI vouchers for the distribution of employee benefits and CSR programmes.
One advantage of the voucher over Direct Benefit Transfers (DBTs) is its dissociation from the user’s bank account details. DBTs rely on the verification of mobile numbers, Aadhaar (though not always mandatory but expedient) and the Jan Dhan accounts. Each of these add extra layers of qualification which could perhaps be minimised while delivering welfare services to the disadvantaged.
e-RUPI vs Digital Rupee
Governments around the world have been working on developing Central Bank-issued Digital Currencies (CBDCs), which are essentially national digital currencies designed to compete with cryptocurrencies, altcoins, and other blockchain derivatives. E-RUPI, on the other hand, is a different concept altogether that was developed to facilitate electronic transfer of benefits.
However, since the voucher’s functionality is based on NPCI’s UPI platform and it is backed by the INR as its underyng asset, its workings could be used to study existing deficiencies in India’s digital payments infrastructure. Those studies could further help refine the development of a CBDC.
Cost & Benefit
One of the top selling points of e-RUPI is its prepaid nature which means the service provider will receive timely payment without the involvement of an intermediary. The fewer the intermediaries, the more costs are cut in the delivery chain.
This helps widen the cost-effective reach of service providers like government, private or non-profit organisations, meaning better governance, accountability and transparency. Plus, digitisation of the process enhances real-time data-supported monitoring of disbursements while reducing administrative costs simultaneously.
Vouchers, by nature and definition, are products of results-based financing that have been used extensively over the years. They ensure equitable access to services, reduce barriers in the process and most importantly, improve the fulfilment of targeted benefits since they can’t be misused (unlike cash handouts) by the beneficiary for other purposes.
There’s an e-commerce upscaling consideration as well. E-vouchers can be used to push targeted retail sales and increase consumer spending in the economy, quite similar to the government-sponsored e-vouchers offered in Hong Kong recently.
But it is not a foolproof mechanism, especially for tangible benefits which the recipient can obtain and resell later. Some studies have also shown that in-kind transfers like e-vouchers have the potential to “distort household purchases” without marked improvements in the consumption of benefits.
Low-operating efficiency of vouchers is also a significant concern as far as functionality is concerned. Especially when you take into account the less-than-efficient digital infrastructure of banks in India which have been appointed to facilitate last-mile deliveries.
Scale of Success
Targeted delivery of benefits have emerged as a priority of national governments, particularly during this pandemic.
Be it the LTC cash voucher scheme introduced in February this year, the home-based care voucher system to improve ASHA care in Assam, or the ongoing plans to devise e-vaccine vouchers for the economically weaker sections, the Central and State governments’ proactiveness in supporting electronic voucher benefits has been quite promising.
In fact, around the world, e-vouchers have been implemented by both the public and the private agencies in different forms and across different sectors — housing, service, employment, food, sports etc. Education vouchers, in particular, have become increasingly necessary and popular benefit instruments in the EU and the USA, by virtue of their universal entitlement nature.
Last year, the Municipality of Beijing announced that it will issue e-vouchers to boost its post-pandemic consumer market economy. Nigeria has also embarked on an innovative mobile phone-based fertiliser subsidy programme. Zambia has come up with a novel e-voucher system for its farmers which is linked to a beneficiary’s national registration card number (similar to Aadhaar).
In one of the more striking success stories, the change from in-kind food transfers to e-vouchers (BNPT scheme) in Indonesia was shown to reduce poverty by almost 20% among the poorest households.
In the USA, however, despite the popularity of school vouchers and food stamps (state-issued vouchers for cheap food to those with low income), account-linked transfer of benefits has seen significant growth lately, more so during the pandemic when the government-issued stimulus cheques gained wide prominence.
The Wall Street Journal pointed out that e-vouchers and coupons were better for stimulus delivery than one-time cash distribution. While cheques promote increased spending in “priority utilities and rent”, they don’t help with targeted recovery of hard-hit sectors like tourism, automobiles, manufacturing etc.
Perhaps the implementation of e-RUPI in India can offer more conclusive data on the merits and downsides of e-voucher systems. Such a large-scale exercise over a billion plus population is expected to demonstrate vulnerabilities and mitigate gaps, if any, in the digital payment networks of the country.
(Originally published August 3rd 2021 in transfin.in)
