Days After RBI Nod, Fintechs Seek Clarity On Tie Ups With Banks For CBDC Pilot

Days after the Reserve Bank of India (RBI) allowed non-bank payment system operators (NBPSO) to participate in retail CBDC pilot, fintech startups are reportedly seeking more clarity from the central bank on the rules of engagement with banks to deploy CBDC use cases. 

The Economic Times, citing an industry source, said that homegrown fintech startups are themselves not clear about how to engage with banks to participate in the retail CBDC pilot. The person added that operational guidelines will have to be worked out between the two parties till there is more clarity on the matter from the central bank.

“Fintechs will need more clarity on operational guidelines, product constructs, which will help the startup ecosystem prepare itself for these integrations,” the same source reportedly said.

For the uninitiated, NBPSOs largely comprise fintech giants such as PhonePe and Google Pay.

Meanwhile, Yes Bank senior executive Ajay Rajan reportedly sought more clarity on whether non-bank payment operators will be allowed direct access to the CBDC ecosystem or they will have to emulate the UPI model and partner with banks.

“While option one would be a strategic call, for now the second route of the bank partnership and co-creation model seems to be the easiest and quickest way to kick off, since banks have already invested in the required infrastructure for the pilot stage of CBDC,” Ranjan reportedly said.

The developments come at a time when banks are reportedly engaging with various fintech startups at various levels to deploy use cases for retail CBDCs. Last week, the RBI allowed NBPSOs to participate in the retail CBDC pilot.

The publication said that ICICI Bank, IDFC First Bank, IndusInd Bank are in talks with various startups to power these “potential use cases”.

“A bunch of large banks and a few large regulated fintechs like PhonePe and Razorpay have held preliminary conversations on how to build use cases on CBDC. Now with regulatory blessings, things will proceed in a more structured manner,” a senior industry executive was quoted as saying.

The report also added that two major use cases are being tested in the first phase of CBDC retail pilot for NBPSOs. While the first one includes subsidy payments for farm inputs, the second use case is around corporate expense management.

It is these use cases that the banks are currently working to deploy and they will now also work closely with fintech startups to fuel the CBDC pilot. As per the report, the RBI is holding weekly meetings with banks on CBDC adoption and usage.

CBDC is an attractive proposition for the government as it boasts of programmability of money, a feature that was introduced recently. This means that the digital currency can be programmed to be used for certain merchants, helping authorities curb pilferage of social security schemes.

A similar sentiment was echoed by RBI Deputy Governor T Rabi Sankar during the announcement last week. He said that one of the first use cases for CBDC is for farmers looking to buy farm inputs with subsidy money.

The central bank recently said that the CBDC pilot currently comprises 46 Lakh users and 4 Lakh merchants that have cumulatively processed more than 2.2 Cr transactions till date.

That said, fintech startups continue to be reportedly concerned about the authorities taking a zero MDR stance on CBDCs too. The fintechs rue the sizable investments that could go towards setting up server systems and blockchain technology to power these transactions.

“UPI has no direct revenue generating opportunities, the question remains if CBDC will also be designed like that, in such cases fintechs, who will need to make substantial investments, will need to imagine alternative business models around CBDC,” a source told ET.