e-RUPI May Help Plug Leakages In Subsidy Transfers

e-RUPI would help simplify direct benefit transfers further, and may even work as a prepaid voucher instrument for corporates.

An employee scans a quick response (QR) code displayed on the phone. (Photographer: Anthony Kwan/Bloomberg)
An employee scans a quick response (QR) code displayed on the phone. (Photographer: Anthony Kwan/Bloomberg)

India's latest digital payment solution, e-RUPI, may become the preferred mode for direct benefit transfers as it could help avoid leakages in subsidy transfers.

Prime Minister Narendra Modi launched the e-RUPI on Monday. The e-RUPI can be used to pay for Covid vaccination programs and other direct benefit transfer schemes, Modi said at an event for the launch of the payment option.

The way e-RUPI works is that a QR code or an SMS string-based electronic voucher can be sent directly to the end-beneficiary for a specific purpose. For example, subsidies for drugs and nutritional support under mother and child welfare schemes, for tuberculosis eradication programme, drugs and diagnostics under schemes like Ayushman Bharat, Pradhan Mantri Jan Arogya Yojana, and fertiliser subsidies, etc. can all go via such e-RUPI vouchers, the government said said in a July 31 press release.

"Over the years, several programmes have been launched to ensure that the benefits reach its intended beneficiaries in a targeted and leak-proof manner, with limited touch points between the government and the beneficiary. The concept of electronic voucher takes forward this vision of good governance," the release said.

Other private sector use cases will also emerge, according to Mihir Gandhi, partner and leader-payments transformation at PwC India. These could be any one-time payment options, such as gift vouchers, fuel top-up, donations and food subsidy.

e-RUPI can be issued by government or by corporates to their employees for targeted use as it only allows purchase from merchant outlets, but does not permit direct cash out or peer-to-peer transfer.
Mihir Gandhi, Partner & Leader- Payments Transformation, PwC India

The contactless digital payments solution is designed by the National Payments Corporation of India, in association with the Department of Financial Services, National Health Authority, Ministry of Health and Family Welfare, and 11 partner banks.

"The users of this seamless one-time payment mechanism will be able to redeem the voucher without a card, digital payments app or internet banking access, at the merchants accepting e-RUPI. e-RUPI would be shared with the beneficiaries for a specific purpose or activity by organisations or government via SMS or QR code," NPCI said on its website.

The solution, according to Fali Hodiwalla, partner-financial services consulting at advisory firm EY, would not just help benefits reach the right end-beneficiary, but also ensure it is spent for the intended purpose.

The product will particularly be useful in cases such as subsidy transfers and health schemes, where the transaction is not complex. This, as e-RUPI is a much more convenient way to access government services as opposed to withdrawing funds from bank accounts, that may not always get used for the intended purpose.
Fali Hodiwalla, Partner - Financial Services Consulting, EY

The major risk, however, he said could be the verification of end-user as the QR code or SMS may be shared with another person, and in that sense, may not reach the right beneficiary.

"In order to ensure the enhanced security of the transaction, it will be useful to verify the end-user at the merchant level."

Agreed, Vivek Iyer, national leader-financial services risk advisory at Grant Thornton Bharat. "e-RUPI as a digital payments solution can only work if the cybersecurity framework backing the prepaid instrument is resilient. There must be a two-step verification to identify the services are being delivered to the right beneficiary, and a grievance redressal process must be put in place to address the lags and user concerns," he said.

The other technical challenges for e-RUPI, said Gandhi, could also emerge from not allowing an option of partial redemption of the e-vouchers, and potential misuse at the points of redemption. "If the one-time password is intercepted then the voucher can be misused at point of redemption."

Further, issuing banks will also have to create a process to prevent duplication and repeat usage of vouchers, said Gandhi.

But the solution, according to Iyer, may work as a testing ground for launching Indian digital rupee in the future, as the prepaid instrument could eventually become synonymous with digital cash.

"From an initiative standpoint, e-RUPI is great because the move will also help the government understand the inherent risks with such an instrument, which can then be addressed later as the country move to a digital rupee story," he said.