E-rupee loses steam, High-value insurance enters fast lane, and more

Welcome to Finance Wrap India, a simplified fortnightly guide to everything finance, told through the voice of experts on LinkedIn and put together by LinkedIn News India editor Preethi Ramamoorthy .

In this edition, we delve into:

?? Why e-rupee transactions are declining

?? The growth of high-value insurance

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Community manager: Aanvi Kamdar

In November 2022, the Reserve Bank of India (RBI) launched the e-rupee as a pilot digital currency.

The launch had put India among the 10 countries that successfully rolled out digital currencies. Globally, more than 100 countries are working on launching their own, but with limited success.

The apex bank in India defined the e-rupee as a legal tender issued in digital form. It is exchangeable at par with the existing currency and is accepted as a medium of payment.

However, more than a year later, the e-rupee is yet to take off in a big way. In fact, it has seen a decline in daily transactions, plummeting to just a tenth of the peak reached in December 2023, reports say.

“While in the longer term, the e-rupee is expected to become a major innovation in the financial industry creating new opportunities for businesses, in the near term, consumers have shown reluctance,” says Sachchidanand Shukla , Group Chief Economist at Larsen & Toubro.?

Read Sachchidanand Shukla's full post here.

A report by EY says the e-rupee must gain acceptance among all stakeholders — from commercial banks to intermediaries and end users – in order to scale up.

The e-rupee successfully achieved a milestone of one million retail transactions per day by December 2023. This was thanks to banks, which offered incentives to push customers to transact using the e-rupee. For instance, Yes Bank and IDFC First Bank are providing reward points that can be redeemed for travel bookings and mobile recharges.

Reports suggest that the sharp decline indicates there is limited natural demand for the e-rupee among the public.?

“The existence of UPI may limit the incentive for users to use the digital rupee,” Vivekanand S., Vice President - Digital Payments and Head Corporate Communications at Electronic Payment and Services, writes on LinkedIn. “In India, UPI already satisfies many of the motivations for issuing a CBDC, such as promoting financial inclusion and enhancing payment system efficiency.”?

Ongoing transactions are primarily driven by banks using the e-rupee to distribute benefits to their employees. Towards the end of each month, transactions increase to around 250,000 to 300,000 per day due to these disbursements. The RBI had set a target for banks to increase daily transactions to at least 1 million by late 2023 to test the scalability of the system.?

Experts say tech could be a roadblock. “Digital currencies require work to learn tasks like how to open a digital wallet and securely store digital assets, which creates barriers to adoption. For the wider adoption of digital currencies, the system needs to be simplified and transaction as well as friction costs will have to be lowered further,” Shukla says.?

Reports say that the RBI is not planning to expand the pilot and the current focus is on testing the technology.?

Kamalika Poddar, Product Lead at LXME, a financial wellness platform, says it’s time to explore more use cases. “This includes cross border payments for businesses, using the programmability to do away with long winding and complex bank guarantees and letter of credits, and even offline capabilities to ensure even the remotest parts can financially progress,” she says.?

How can the adoption of e-rupee be increased? Share your thoughts in the comments below.

High value insurance in demand

The demand for high-value insurance coverage is increasing, especially among high-net-worth individuals (HNIs) in India, The Economic Times reports, citing a Policybazaar study.

More HNIs are opting for high-value policies of ?20 crore over the last few years, the report says. This reflects an evolving sense of risk management and financial planning among this segment.

“The increasing demand for high-value term insurance policies highlights the importance of growing awareness among HNIs,” says Rhishabh Garg, Business Head, Term Insurance at Policybazaar.

The demand is concentrated in cities including Delhi-NCR, followed by Pune, Hyderabad, and Visakhapatnam. More individuals are also opting for customising their coverage with suitable riders to ensure an additional layer of protection.