Economysummary
UPI Vs Digital Rupee : Which Will Shape the Nation’s Financial Future? Experts Weigh In
As India marches towards a cashless economy, two distinct digital payment innovations — UPI and the Digital Rupee — are redefining how money moves. While UPI has transformed daily transactions with decentralised ease, the RBI-backed Digital Rupee promises sovereign control and enhanced transparency. Which one will dominate the coming decade?
Unlike digital wallets that hold money stored in bank accounts, the Digital Rupee is the money — a direct liability of the central bank, not intermediated through private institutions.
India’s digital payments landscape is undergoing a seismic transformation, fuelled by rapid smartphone penetration, growing internet access, and ambitious fintech innovations. At the forefront of this evolution are two distinct yet interrelated forces: the Unified Payments Interface (UPI) and the Digital Rupee, or Central Bank Digital Currency (CBDC).
Each holds a unique position in India’s cashless journey. While UPI is now a household utility for millions, enabling swift interbank transactions, the Digital Rupee presents a centralised, sovereign digital currency backed by the Reserve Bank of India (RBI). But as India eyes a fully digital economy, the pressing question arises — which of these will truly power the nation’s financial future?
Digital Rupee: The RBI’s Controlled Vision for Currency
Introduced in pilot phases in late 2022, the Digital Rupee (e₹) is the RBI’s official foray into central bank digital currency. It is not just a payment mechanism but a digital version of legal tender, holding the same value as physical cash — only virtual.
Key Features of the Digital Rupee:
- Issued and regulated by the RBI, it brings governmental oversight and security.
- Can be used for retail and wholesale purposes, including international transactions.
- Functions as a bearer instrument, just like cash — enabling offline payments in pilot projects.
Meanwhile, the Digital Rupee offers the privacy and familiarity of cash, while bringing the speed and reach of digital technology, particularly in rural and remote areas. Its offline usability and central bank (RBI) backing are expected to boost financial inclusion where traditional banking infrastructure is limited.
Goyal noted that “the Digital Rupee's offline functionality and RBI backing enhance financial inclusion in underserved areas,” making it a strategic tool for bridging the gap in access to formal finance. He concluded that this synergy between UPI and the Digital Rupee is shaping a strong, inclusive ‘digital payments’ ecosystem that could elevate India to the forefront of global fintech innovation.
Applications of the Digital Rupee:
- Cross-Border Trade: Enables instant and transparent settlements without currency conversion or intermediaries.
- Government Transfers: Direct credit of subsidies or benefits into citizens' digital wallets with reduced leakage.
- Financial Inclusion and Transparency: By digitising physical cash, it brings unbanked populations into the formal economy and enhances traceability, helping fight black money.
Goyal attributes UPI’s massive success to a unique mix of factors: the timing of demonetisation, affordable mobile data at ₹10/GB (the lowest globally), over 750 million smartphone users, and the National Payments Corporation of India’s (NPCI) decision to remove merchant charges (MDR). He also pointed to the more than ₹40,000 crore invested by major fintech players like Google Pay, PhonePe, and Paytm, which helped make digital payments smooth and accessible.
However, Goyal was critical of the Central Bank Digital Currency (CBDC), also known as the Digital Rupee. He called it “a wallet in search of a problem,” arguing that unlike UPI, the Digital Rupee adds friction by requiring users to set up accounts, load money, and depend on merchants being ready—without offering an immediate, clear advantage.
UPI: The Decentralised Backbone of Daily Transactions
The Unified Payments Interface (UPI), developed by the National Payments Corporation of India (NPCI), has been nothing short of revolutionary. Since its launch in 2016, UPI has seen exponential growth — over 14.04 billion transactions worth ₹20.45 lakh crore were recorded in April 2025 alone, as per NPCI data.
What Makes UPI Popular:
- Interoperability: Works across banks, wallets, apps like PhonePe, Google Pay, Paytm, etc.
- Real-Time Settlement: Instant transfers anytime, 24/7.
- Flexibility: One user can link multiple bank accounts and payment apps.
Marwah also highlighted the role of the Digital Rupee, India’s Central Bank Digital Currency (CBDC), which is expected to transform the financial system by offering a secure, government-backed alternative to traditional payments, including offline options. This means the Digital Rupee could work even without internet access, making it especially useful in remote or underbanked areas. UPI and the Digital Rupee are not competitors but rather complementary tools. As more people begin using the Digital Rupee, UPI will likely evolve to handle both regular bank transfers and digital currency transactions on the same platform.
UPI Use Cases:
- Peer-to-Peer (P2P) transfers: Send or request money instantly among friends or family.
- Retail and Merchant Payments: Scan-and-pay via QR codes, especially critical for India’s informal sector.
- E-Commerce: Fast, secure checkouts without entering card details.
Digital Rupee vs. UPI: A Comparison
| Feature | Digital Rupee (CBDC) | Unified Payments Interface (UPI) |
|---|---|---|
| Nature | Digital legal tender | Real-time payment system |
| Issuing Authority | RBI | NPCI (managed by banks and apps) |
| Control | Centralised | Decentralised |
| Storage | Digital wallet (CBDC wallet) | Linked to bank account |
| Privacy | Low (RBI oversight) | Moderate (depends on app and bank policies) |
| Scope | Nationwide + international potential | Domestic P2P, merchant, e-commerce |
| Offline Capability | Pilot testing in progress | Requires internet |
Expert Views: Complementary or Competitive?
Economists argue that UPI and the Digital Rupee are not rivals but rather complementary tools in India’s payment architecture.
According to Ajay Kumar Choudhary, Executive Director at the RBI, "CBDC is not meant to replace UPI but to coexist. It can offer an additional payment avenue with sovereign backing."
Meanwhile, Mint quotes a fintech strategist from a leading bank saying, "The Digital Rupee may offer efficiency in government disbursements and wholesale trade, but UPI remains irreplaceable for day-to-day retail payments."
Challenges Ahead for the Digital Rupee
Despite its potential, widespread adoption of the Digital Rupee faces several hurdles:
- Limited usage beyond pilot testing zones.
- Low merchant acceptance due to unfamiliarity and infrastructure requirements.
- Data protection and surveillance concerns due to centralised control.
- Need for consumer education, as many users still confuse it with mobile wallets or UPI.
Who Will Power the Future?
As India moves closer to a cash-lite economy, both UPI and the Digital Rupee have indispensable roles to play.
- UPI will continue to dominate everyday retail payments, thanks to its convenience and decentralised model.
- The Digital Rupee could become India’s sovereign bridge to cross-border finance, government benefits, and monetary stability in the digital realm.
Shetty sees the Digital Rupee as the next major leap, highlighting its potential to introduce programmable money, direct settlements, and reduced reliance on intermediaries — features that could significantly streamline and personalise financial services.
For platforms like RentenPe, which seek to build financial credibility through rent payments, she envisions a hybrid model where “UPI will continue driving adoption, while Digital Rupee can unlock smarter credit products and targeted subsidies.” She concluded with a compelling analogy: “UPI is the bridge, but the Digital Rupee could be the expressway to a more inclusive and intelligent financial ecosystem.”
Rather than a duel, India’s digital financial future likely rests on a dual-engine model — one where UPI ensures instant, flexible payments, while the Digital Rupee brings sovereign strength and global compatibility to the monetary system.
Samannay Biswas author
Working as Copy Editor at the Business Desk of Times Now Digital. Dedicated towards crafting interesting financial stories. Previously covered financi...View More
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