CBDC retail pilot customers grow to 5 million till June 2024: RBI report
Mumbai, July 29, 2024
India is among 36 countries where the CBDC is currently in the pilot stage. RBI started the CBDC pilot during the end of 2022
The retail pilot for Central Bank Digital Currency (CBDC) saw customers growing to 5 million till June 2024 from 1.3 million a year ago, while merchants increased to 0.42 million from 0.3 million, Reserve Bank of India’s currency and finance report said.
India is among 36 countries where the CBDC is currently in the pilot stage. RBI started the CBDC pilot during the end of 2022.
The report said CBDCs provide benefits such as reduced cash dependency, lower currency management cost, reduced settlement risk, and implications, among others.
It can reduce transaction demand in deposits, as it brings down settlement risk, reducing the liquidity needs for settlement of transactions.
“A reduction in availability, and/or an increase in the cost of credit from the banking sector could impact aggregate demand and supply in the economy and weaken the bank lending channel of monetary policy transmission,” the banking regulator said.
It added that positively remunerated CBDCs could lead to more effective monetary policy transmission as banks will need to compete for more deposits, and thereby maintain competitive deposit rates.
“Innovations in payment systems, including CBDCs, alter the environment in which the central bank operates and could have far-reaching implications on monetary policy transmission, its own operational framework, and objectives of price and financial stability,” the banking regulator said.
CBDCs can be classified on the basis of their usage such as wholesale (CBDC-W), and retail (CBDC-R).
CBDC-W serves institutional participants of the financial markets. CBDC-R is a digital medium of exchange for retail consumers with initial use cases being Person to Person (P2P) and Person to Merchant (P2M) transactions.
On the direct benefit transfers (DBT) front, the central government conducted over 10 billion transactions amounting to Rs 6.9 trillion during 2023-24, the report said.
The adoption of digital payments among customers is lower than that of merchants, an RBI survey of about 90,000 participants found out.
About 41.9 per cent of consumers have used digital payments at least once in their lives as compared to about 66 per cent of merchants who have used the method to transact digitally.
About 20 per cent of merchants have never used digital payments despite being aware of the method of payment. 11.2 per cent of this cohort did not use it on the back of a lack of awareness.
“Younger age groups have a definitive advantage over the older cohorts in adopting digital payments. Increasing the awareness levels across the age groups would reduce the risk of vulnerable sections being subject to potential frauds and other cyber malpractices,” the RBI said.
Despite having made progress on the digital payments front in the last few years, some challenges still persist.
These include barriers such as financial literacy, mistrust in digital systems, insufficient network infrastructure, and complexity or inaccessibility of digital financial products.
Scalability issues with respect to payment systems also pose a challenge to the growth in digital payments. It can lead to system outages, slow transaction processing, and customer dissatisfaction, RBI said.
Dark patterns can impact user trust and include practices such as hidden fees, forced recurring subscriptions, complicated cancellation processes, bait and switch, sneak into basket, incomplete payment disclosures, and false urgency.
“The challenge is to ensure that the payment systems remain one step ahead of the malicious agents and safeguard customers from these threats to retain and strengthen their trust,” the report added.
[The Business Standard]
