January 14, 2025 · 13 mins read
Santosh Kumar
The introduction of the Digital Rupee (e₹) marks a significant milestone in India's digital economy, creating waves of curiosity and excitement among citizens, businesses, and financial institutions alike. With the widespread adoption of the Unified Payments Interface (UPI), many are questioning: How is Digital Rupee different from UPI? To truly understand the differences between these two revolutionary systems, one must delve into their core structures, mechanisms, and implications for the Indian economy.
In this comprehensive guide, we’ll explore the distinctions between the Digital Rupee and UPI, discussing their functionality, technology, benefits, and future potential. By the end, you’ll have a clear understanding of why the Digital Rupee is not just a replacement for existing systems like UPI, but a complement to them.
The Digital Rupee, also known as the e₹, is India's Central Bank Digital Currency (CBDC) introduced by the Reserve Bank of India (RBI) as a digital alternative to physical cash. This transformative step in India’s financial ecosystem offers several key features designed to enhance efficiency, security, and accessibility in monetary transactions.
Unlike cryptocurrencies, the Digital Rupee is a legal tender issued and regulated by the RBI. Its value is equivalent to physical cash, ensuring trust and stability in its usage.
The e₹ facilitates instantaneous peer-to-peer and business-to-business transactions. It eliminates the need for intermediaries, reducing costs and processing times, especially for cross-border payments.
With its digital format, the Digital Rupee aims to promote financial inclusion by reaching unbanked populations. It can be accessed via mobile devices, making it particularly beneficial for rural and underserved areas.
The Digital Rupee uses advanced cryptographic techniques to prevent fraud and ensure secure transactions. It operates on blockchain or similar distributed ledger technology, providing a tamper-proof record of all transactions.
One standout feature is its programmability, allowing pre-defined conditions for payments. This is especially useful for government subsidies and grants, ensuring funds are used for intended purposes.
By reducing reliance on physical currency, the Digital Rupee minimizes the environmental impact associated with printing, transporting, and disposing of cash.
The Digital Rupee integrates seamlessly with existing payment platforms, such as UPI and digital wallets, ensuring a smooth transition for users.
The introduction of the Digital Rupee marks a pivotal shift towards a cashless economy, reflecting India’s commitment to technological innovation and financial modernization.
Unified Payments Interface, or UPI, is a software payment system to enable users to carry out all sorts of financial transactions using a mobile device online. Instead of entering personal data like bank account number, IFSC code, etc.; like one has to in traditional forms of withdrawals and deposits; this method makes use of the web to transfer money to and fro. Transactions can simply be initiated through a quick response code(QR Code) or a UPI Id. Thus enabling users to make payments and transfers efficiently just through some clicks.
If talking in technical terms, UPI enables transfer of funds from peer-to-peer (P2P) and person-to-merchant (P2M). Its basic operation makes use of the Immediate Payment Service (IMPS) infrastructure, which allows for instant money transfers even outside of banking hours. Even if the two parties involved in money transfer have accounts in different banks, UPI has integrated service providers at one platform thus making transactions free of technicalities and time-efficient.
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A UPI ID is just like any other identification card a student may carry to enter school premises; it is basically a unique virtual payment address personal to the user. abc@bank is one such instance of a UPI Id. On the other hand UPI PIN is a 4 or 6 digit code that needs to be entered to initiate financial transactions. These credentials eliminate usage of sensitive data.
Instead of downloading different netbanking apps, one can simply download popular interface apps like Google Pay, PhonePe, Paytm, and BHIM which acts as a medium for transference of funds. UPI apps have software that integrates all banking services at one place.
Initial setting up of a UPI: Download any UPI-enabled app and get it linked to your bank account.
Create a unique UPI ID and set a UPI PIN.
Start a Transaction: Launch the app and choose the type of transaction you wish to carry out: send money, receive payments, or pay bills.
Enter the recipient’s UPI ID, mobile number, or bank account details.
Verification and Authorization: The app will verify the transaction after entering the PIN code.
Instant Transfer: Once the validation has been carried out by the interface, the transaction is processed. Also a notification informing the same is sent to both the involved parties.
Read More:: How To Deactivate UPI ID?
By allowing transfer of money online just through a few clicks relieves users of the stress of remembering lengthy account numbers and IFSC codes. Credentials of the linked bank account have to be entered only once when setting up the UPI. For further transactions, the same information is stored in a secure database thus eliminating any need of cumbersome inputs repeatedly. Transactions are initiated using a Virtual Payment Address (VPA) or through the linked mobile number.
A boon for emergency situations and hasty transactions all to and fro payments carried through UPI are processed instantly. Just as you verify a payment through the UPI ID, the money gets credited to the receiver's account and is displayed to the person almost immediately.
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Unlike traditional banks that can only be visited during certain working hours, UPI is an online software, thus anywhere, anytime, providing round-the-clock service. This ensures that one can send or receive money anytime without being hassled by constraints of banking hours. Also due to the fast paced living of metropolitans and towns alike, no one likes to wait. In this regard, UPI is an absolute blessing to individuals who wish to avoid long queues and never-ending waiting hours.
UPI transactions charge negligible fees or very minimal charges unlike conventional methods like NEFT or RTGS. This makes for an economical choice of payment for small business owners and individuals by cutting down overhead charges.
Due to its feature of end-to-end encryption and multi-factor authentication, UPI has a waterproof security system. This payment solution is almost free from all kinds of cyber security crime. Nevertheless, even if the interface firewall is compromised in any way leading to discrepancies in an individual's bank statements, the owner is instantly notified of any trespassing or debits and credits. Features like UPI PIN add an extra layer of protection, plugging any vulnerabilities and mitigating chances of unauthorized access.
UPI enables easy management of finances as it incorporates the feature of assimilating all bank accounts on one platform. All your accounts can be linked to the same UPI on a single number thus eliminating any need of juggling between various applications and interfaces. It also supports cross-platform transactions, thus allowing one to send money from one UPI app to another seamlessly.
Read More:: How to create a UPI ID and UPI PIN?
Almost every strata of the population makes use of UPI services, right from small vendors to large businesses. Its widespread acceptance is further catalysed by its support feature that integrates QR code with the interface thus allowing offline and online payments thus stimulating financial inclusion.
UPI has made realization of India's vision of a cashless economy a probable and attainable goal. This not only reduces dependency on physical cash but also curtails tax evasion and other illegal activities.
In the evolving landscape of financial technology, India's introduction of the Digital Rupee (e₹) and the United Payments Interface (UPI) signifies major strides toward enhancing digital transactions. While both aim to digitize payments and reduce reliance on cash, they are fundamentally different in terms of structure, purpose, and functionality. Here’s a closer look at the key differences between these two revolutionary payment systems.
Digital Rupee (e₹): The Digital Rupee is a Central Bank Digital Currency (CBDC) issued and regulated by the Reserve Bank of India (RBI). It is the digital equivalent of physical currency, carrying the same legal status as fiat money. Essentially, it is a tokenized form of cash that exists digitally.
UPI: UPI, on the other hand, is a payment interface that facilitates the transfer of money between bank accounts in real-time. It acts as a bridge between banks, enabling seamless peer-to-peer (P2P) and business-to-consumer (B2C) transactions. UPI is not a currency but a platform for executing digital payments.
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Digital Rupee: The Digital Rupee is built on blockchain and distributed ledger technology (DLT), which ensures secure and tamper-proof transactions. It is issued directly by the RBI, eliminating intermediaries such as commercial banks in the issuance process. Users hold digital wallets, similar to physical ones, containing their e₹ balances.
UPI: UPI operates through the National Payments Corporation of India (NPCI) and relies on existing banking systems to facilitate transactions. It requires users to link their bank accounts to UPI-enabled apps like Google Pay, PhonePe, or Paytm. UPI transactions are executed through IMPS (Immediate Payment Service) infrastructure.
Digital Rupee: The primary purpose of the Digital Rupee is to provide a cashless alternative that mimics the functions of physical currency while maintaining anonymity. It aims to reduce the costs associated with printing and managing cash, enhance financial inclusion, and offer a secure and reliable form of digital legal tender.
UPI: UPI focuses on enhancing convenience in transferring money between accounts and making payments for goods and services. It supports functionalities like recurring payments, QR-based transactions, and merchant integration. UPI simplifies digital payments but still depends on the banking system for fund settlement.
Digital Rupee: The e₹ offers a degree of anonymity similar to cash transactions, as it doesn't necessarily require linking to a bank account. Transactions can occur directly between two parties, preserving user privacy to a greater extent.
UPI: UPI transactions are traceable since they involve bank accounts and are recorded in the banking system. This makes UPI more transparent but less private compared to the Digital Rupee.
Read More:: How to Do Offline UPI Payment
Digital Rupee: Since the Digital Rupee bypasses intermediaries, transaction costs are minimal or nonexistent. This makes it an attractive option for micropayments and cross-border remittances.
UPI: UPI transactions may involve nominal charges in the future, especially for large volumes, as the infrastructure costs are borne by banks and payment service providers.
While UPI is primarily designed for domestic use, its growing adoption internationally shows its potential as a global payment system. The Digital Rupee, however, is more focused on serving as India’s sovereign digital currency and may facilitate cross-border payments if adopted globally.
The Digital Rupee offers unique advantages over UPI, particularly in terms of innovation, inclusivity, and economic efficiency.
The Digital Rupee ensures that even the unbanked population can participate in the digital economy. By enabling transactions through basic smartphones without the need for a traditional bank account, it bridges the gap between urban and rural financial systems.
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Printing and managing physical currency incurs significant costs. The Digital Rupee eliminates these expenses, making the financial system more economical. Additionally, it reduces the burden of logistics, including storage and distribution.
The Digital Rupee offers real-time settlements, eliminating delays associated with traditional banking processes. Enhanced security features minimize risks of counterfeiting and fraud, providing users with a safe and reliable medium of exchange.
The Digital Rupee ensures greater transparency in financial dealings. Every transaction is recorded, making it easier to monitor and prevent illicit activities such as money laundering or tax evasion.
As India rapidly moves towards a digital-first economy, the Digital Rupee complements initiatives like UPI and digital wallets. It facilitates seamless transactions across sectors, fostering economic growth and innovation.
The Digital Rupee can simplify cross-border transactions by reducing dependency on intermediary banks and lowering transaction costs, boosting international trade.
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India’s vast and diverse population poses a major technological challenge. While urban areas have widespread internet access, many rural regions still lack reliable connectivity. Ensuring seamless access to the digital rupee in these areas would require substantial infrastructural upgrades. Moreover, cyber-security threats, such as hacking and data breaches, raise concerns about the safety of digital transactions.
Educating the public about the benefits and usage of the digital rupee is critical. A significant portion of the Indian population is either unbanked or lacks the digital literacy required to use electronic payment systems. Building trust in a digital currency and overcoming resistance to change will take time and concerted efforts.
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While the digital rupee aims to enhance financial inclusion, it may unintentionally widen the digital divide. Marginalized communities, including those with limited access to smartphones or digital wallets, could be left behind unless inclusive policies are implemented.
The digital rupee’s direct issuance by the RBI may disrupt traditional banking systems. If customers shift their deposits from banks to digital wallets, it could reduce the liquidity available for lending, potentially impacting the banking sector’s profitability.
The digital rupee raises questions about user privacy. Balancing transparency with the need to protect user data from misuse will require robust regulatory frameworks. Additionally, clear guidelines on cross-border transactions and anti-money laundering measures are essential.
Addressing these challenges is key to ensuring the digital rupee's success as a secure, inclusive, and efficient currency.
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In conclusion, how is the Digital Rupee different from UPI? The answer lies in their core structures and purposes. While UPI serves as a payment platform linking bank accounts, the Digital Rupee is a digital form of sovereign currency with far-reaching implications for the economy. Both are indispensable pillars of India’s evolving digital landscape, shaping the future of transactions in unique ways.
1. What is the Digital Rupee?
The Digital Rupee is a central bank digital currency (CBDC) issued by the Reserve Bank of India, functioning as digital cash.
2. How is the Digital Rupee different from UPI?
UPI is a payment platform that facilitates money transfers between bank accounts, whereas the Digital Rupee is an actual currency in digital form.
3. Do I need a bank account for the Digital Rupee?
No, the Digital Rupee can be stored in a digital wallet without requiring a linked bank account.
4. Is the Digital Rupee traceable?
Yes, transactions using the Digital Rupee are traceable, unlike physical cash, ensuring better monitoring and transparency.
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