The central bank has identified eight banks for the phase-wise pilot launch of the retail digital rupee. Four banks including State Bank of India (SBI), ICICI Bank, YES Bank, and IDFC First Bank are taking part in the first phase of the pilot programme while Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank will join the pilot in the second phase. It has been issued in the same denominations that paper currency and coins currently in circulation.
Adelia Castelino, Co-Founder and Managing Director, In solution Global shared her views on how to make the digital Rupee or CBDC a success, to the Times of India (ToI). Here is what she said the following measures can be implemented to enhance the adoption of CBDC.
Educating peopleCastelino wrote, “While many initiatives have been undertaken, the most crucial factor for the adoption of the right form factor will be educating and imparting knowledge about CBDC-based transactions. The government must create a supporting environment, especially in rural areas where penetration of digital payments can be challenging due to low literacy rates, limited know-how and poor connectivity. Lack of awareness and concerns around data security are the most common reasons why people are less likely to accept digital currencies.”
“Empowering people with financial knowledge and decision-making skills will equip them to adapt faster to the CBDC implementation and navigate the rapid evolution of payment methods,” Castelino added.
Fulfilling unique user needs
Castelino stated that, “In a fast-changing payments landscape, the CBDC has to be designed in a way that it can define and address the unmet needs of the majority of the population. This can be done by analysing specific market segments and user personas to understand consumer demand. These results could potentially influence public consultation and communications on CBDC and help the central bank incorporate user needs by designing a flexible core system.”Further, she said “As the world of payments continues to evolve in this digital age, CBDC can be developed to combine innovative features into a single product. For instance, people put a lot of importance on anonymity. Similar to physical cash transactions, intermediaries don’t have access to the consumers’ transaction data and this anonymity factor that drives consumers’ privacy is an added advantage of the digital currency.
The key drivers here, she said, are assurance of the protection of the data and addressing privacy concerns. Regulatory and compliance measures to protect the data are a prerequisite for digital currency to survive and grow.
Increasing internet, smartphone penetration
Another key measure for CBDCs to empower people will be improving the existing payments infrastructure and accessibility to the internet across semi-urban and rural India, wrote Castelino. Governments and private internet firms must join hands to build an affordable and robust internet infrastructure. “This will enable people to use mobile wallets for CBDC-based transactions in low-bandwidth areas. For this, the usage of lite front-end user applications becomes more crucial. If merchants are able to integrate CBDC into their existing payment functionality through new solutions, CBDC payments could potentially be available on existing networks.”
In addition, CBDC transactions also require mobile providers to increase smartphone penetration for users to access their accounts, quickly download apps and set up their accounts, she said.
Making offline payments a reality
“The adoption of digital currency will be far greater, especially in rural India, if we integrate elements of offline digital payments framework into it. With the issuance of CBDC, the central bank must find ways of offering a secure and reliable digital version of cash, whether or not a person has access to the internet. This could be through the exploration of offline modes with built-in security features for safeguarding the interest of users. It is critical that CBDC is widely available to everyone and connects the population to the government’s vision of actualizing innovation in financial services,” wrote Castelino.
Privacy concerns and enhancing data protection
“A 2021 paper by the World Economic Forum highlighted cybersecurity threats such as credential theft and loss, digital, counterfeiting, fraud and other types of cybersecurity risks that may affect new platforms like CBDCs. The government and the central bank must work on addressing these privacy concerns and ensure that the CBDC system must incorporate the highest standards of security, resilience, and reliance,” she wrote in ToI.