BUY NOW PAY LATER (BNPL)

 

 

Buy Now Pay Later: BNPL schemes

BNPL is a short-term micro credit model, where consumers must pay little to no interest for online purchases through ecommerce platforms. Starting in ecommerce marketplaces, BNPL start-ups are tying up with food delivery companies, travel booking players as well as grocery and other essential delivery platforms. This has allowed consumers to purchase and delay the payment by 14–30 days or repay the amount over several instalments. The success of BNPL in the Indian context can be attributed to the fact that it offers formal microlending in an informal way, without putting customers through the cumbersome loan processes of traditional banks.

Shift Of Traditional Banks Towards BNPL Model

Buy now pay later (BNPL) is an emerging lending tech sector in India with the presence of several startups and fintech platforms now testing various strategies. In addition to pureplay BNPL start-ups such as Simpl, Lazypay, Zestmoney, ePayLater, ecommerce marketplaces Flipkart and Amazon India also offer their own BNPL products, while even fintech and payments companies such as PhonePe (via Flipkart) and Paytm have ventured into this territory

Simpl is working with over 2500 merchants and has over 7 Mn active users. Posting a compound annual growth rate (CAGR) of 36%, India’s BNPL sector is expected to reach $100 Bn by the end of 2023 which indicates just how popular these lending platforms are, even in their infancy.

Indian ride-hailing aggregator Ola also recognised the potential of BNPL and started offering Ola Post-paid, which also offers a pay-later option for 300+ third-party platforms, besides Ola itself.

While start-ups have led the adoption charge, traditional banks have held back from venturing into BNPL due to the fear of cannibalising their lucrative credit card business. It is only lately that banks have realised that credit cards and BNPL can coexist and complement each other. 

Banks are using BNPL to attract a new set of customers that have so far stayed away from credit cards. For instance, ICICI Bank partnered with payments giant Pine Labs to offer in-store pay-later facilities to retail consumers. This allows consumers to make high-value purchases with payments split over monthly instalments (EMI). Besides offering a no-cost loan product, it eases onboarding by reducing documentation. 

Similarly, in 2018, HDFC Bank also launched its Flexipay to provide zero interest credit for 15 days with a maximum credit limit of INR 60K. The bank partnered with Myntra, shoe maker Bata, OTA MakeMyTrip, healthtech start-up Curefit, beauty giant Lakme Salon, Urban Ladder and other platforms. 

Such BNPL EMI offers available at offline stores via PoS device providers are turning out to be a potent tool for small and medium businesses to revive sales in the aftermath of the Covid slowdown. While BNPL helped consumers make small-ticket purchases, it has also found traction in driving the purchase of white goods and other big-ticket items, even on ecommerce platforms.

The launch of Amazon Pay Later and Flipkart Pay Later is said to have boosted sales on their respective platforms especially in the festive season sales in 2020. Last year, Flipkart highlighted that EMI options and pay later were an important enabler of credit for customers this year. The company witnessed 7x higher spends though pay later option and 1.7x higher adoption of the EMI schemes. So the ongoing crisis and pandemic pushed ecommerce giants to look for new opportunities and offer unique financial services and credit products to customers led by the BNPL revolution.

 

Why are BNPL services gaining more attraction as compared to Credit cards?

 

Over the past few years, the Buy Now Pay Later (BNPL) has become a prominent financing form. In India, the demand for BNPL has been growing for about 2-3 years, further accelerated by COVID-19. BNPL has emerged as a more convenient payment method essentially decreasing the financial burden on borrowers by offering no-cost EMIs.

According to Goldman Sachs, the Indian e-commerce industry is poised to become a $99-billion market by 2024, driven by consumer demand. At the same time, industry experts say, BNPL will become the fastest growing online payment method, from a 3 per cent share in 2020 to 9 per cent in 2024.

A Q4 2020 BNPL survey predicted that BNPL would grow by 65.5 per cent in India, reaching a value of $11,570.7 million in 2021. The adoption of this payment mode is expected to rise at a 24.2 per cent CAGR from 2021 to 2028, taking the gross merchandise value of BNPL in India to $52,827.2 million by 2028, from $6,990.5 million in 2020.BNPL boosts conversion rates and average order values (AOV) for merchants by lowering shoppers’ purchase hesitation. It is expected to continue to rise in popularity as a payment method with benefits for all players. For instance, Flipkart recently expanded its Flipkart Pay Later services to make credit available not just on the platform but also on other partner channels, similar to other BNPL service providers Paytm Post-paid and Amazon Pay.

 

How do BNPL offerings work?

 

The core tenet of BNPL service is that it enables one to pay overtime – but afford what to buy, today. The credit period for BNPL services ranges from 30 days to 36 months, depending on the transaction size. Similarly, the credit amount also depends on the lender – for instance, while Flipkart offers a seamless checkout process for up to Rs 10,000, under their BNPL services, ZestMoney, another BNPL lender, offers up to a personalised limit of Rs 60,000.

BNPL facilitates a speedy one-click checkout process.” To avail of the BNPL services, the buyer needs to sign-up once at checkout and can proceed to use the solution when shopping across various brands and merchant websites. BNPL is usually low cost or no cost financing with a flexible repayment schedule.

 

How is BNPL different from credit cards?

 

The main feature of the ‘Buy now pay later is it is a one-click credit facility service available on checkout on merchant apps and websites. With BNPL, one can avail of this short-term credit option to make instant purchases and pay for them later. Here is how BNPL differs from credit cards:

 

Transparent and low-cost pricing model: BNPL usually follows a transparent and low-cost pricing model because a lot of the offers are subsidised by brands so that the customer gets the best value of the offering. Lizzie Chapman, CEO and Co-founder, ZestMoney, says, “Unlike credit cards that are meant to deceive the customer with hidden charges and exorbitant interest rates, BNPL is transparent. The customer knows exactly how much he/she will be paying.”

 

Completely digital and instant sign-up process: Anyone sitting in any part of the country can sign up and avail of the service. Credit Cards on the other hand require weeks and a lot of paperwork. With digital KYC, one can get instantly approved and start transacting.

 

More accessible: When compared, experts say, credit cards are for high CIBIL customers, people in metros and salaried folks. Only 30 million people in India use credit cards. Chapman of ZestMoney adds, “BNPL by nature is designed for a much bigger market, including new to credit customers or people with insufficient credit history. Most BNPL players use an alternative data and proprietary model to approve these customers. Also, Indians are leapfrogging credit cards to BNPL.”

 

Higher interest rate – Credit Cards or BNPL providers

 

It’s a well-known fact that credit cards are the most expensive form of credit. Interest rates on missed payments can go up to 48 per cent, whereas BNPL companies charge around 0 to 24 per cent interest rate depending on the merchant, tenure and the borrower.

 

Why are BNPL services gaining more attraction as compared to Credit cards? Why do youngsters find BNPL attractive?

 

There is a clear reluctance in consumers towards using credit cards and the biggest source of the disinclination comes from the ‘hidden charges’ or the various transaction fees a credit card company charges its customers.”

 “Annual maintenance fee, cash advance fee, surcharges on petrol, and GST charges are just some of the extra costs a user incurs for using a credit card. Paying at the time of delivery builds trust in the transaction and cash on delivery is a true 1-click checkout and this is what BNPL services offer consumers.” The BNPL service is completely digital, online and instant. It is easier, quicker to apply and get approvals. There is no need for an agent to come over for paperwork.

 

The Red Flag

 

Even with all the benefits and attractive features, industry experts say customers should be careful while availing of the buy now pay later service. Though it differs from one lender to another, late fees or penalties as one-time fees are charged, which are usually not compounded, a stark difference from credit cards. It is important to note that BNPL is essentially still a loan and therefore BNPL providers can report one’s repayment behaviour to the credit bureaus.

 

While BNPL has opened many doors for financial inclusion and opportunities, there are still a few important things that both borrowers and lenders must consider. Borrowers must know BNPL is essentially still a loan and therefore BNPL providers can report one’s repayment behaviour to the credit bureaus upon delay in payment. Experts say, just like any other loan, it will still fall upon the customer to make repayments promptly to maintain a healthy credit score since most BNPL providers report repayments to credit bureaus. Late fees or penalties can have a stark difference from credit cards as they are usually much higher. BNPL can tend to lead to higher impulse purchases and oftentimes, they create the repayment plan and users do not have a say on what date the payments are made.

 

Experts say, just like any other loan, it will still fall upon the customer to make repayments promptly to maintain a healthy credit score since most BNPL providers report repayments to credit bureaus.

 

Source : internet

Systematic Investment Plan (SIP)

 

Systematic Investment Plan (SIP)

Sip is an investment route wherein one can invest a fixed amount at regular intervals– say once a month or once a quarter, instead of making a lump-sum investment. The instalment amount could be as little as INR 500 a month and is like a recurring deposit. It’s convenient as you can give your bank standing instructions to debit the amount every month.

SIP has been gaining popularity among Indian investors, as it helps in investing in a disciplined manner without worrying about market volatility and timing the market. Systematic Investment Plans are easily the best way to enter the world of investments for the long term.

How does a SIP work? 

Through SIPs you can invest in any funds or shares, which help you, create wealth over the long term. Here, generating returns and creating wealth is not the same thing. Investing in fixed deposits only helps you in generating returns. But if you want to create wealth, you can invest in SIP mutual funds. And this amount is automatically deducted from your bank account at the interval at which you choose to invest. 

Let’s suppose, you invest a certain amount in a monthly SIP and have automated your deduction date as 5th of every month. So, this amount will be automatically deducted from your bank account on the 5th of every month to be invested on the selected mutual fund. 

How investing in SIPs helps you create wealth?

In exchange for the money that has been paid to mutual funds, it allots a number of units to you. 

For example, let’s assume that the NAV for a mutual fund is currently Rs 20. Now if you invest Rs 1,000 in that mutual fund, you will be allotted 50 units of the scheme. As the NAV of the mutual fund increases, your investments will also grow accordingly. So, if the next year, the NAV of this fund becomes Rs 30, then the 50 units that you had bought for Rs 1000, would be worth Rs 1,500 after the increase. This is the way your investment grows, helping you to create wealth over the long term. 

As an investor, the next question you might ask is why should I invest in SIP? 

Here are the 3 benefits of investing in SIPs

#Number 1: Rupee cost averaging:

Whenever you invest in a SIP, your cost gets averaged out. As you see, the markets move in cycle. Sometimes it is bearish, then it turns bullish and then again, bearish, and then bullish. This is how the cycle moves. So, if you are investing a fixed amount on a regular basis in a SIP, in the time when the markets are bearish, you will be allotted more units for your investments. Meanwhile when the markets go up, the number of units that will be allotted for your investments will be much lesser. That is, when the markets are down you are buying more units and when the markets are at the peak, you are buying less. This way your cost gets averaged out. Now, when the market cycle changes, for example from bearish to bullish, since your cost has been averaged out, this becomes an opportunity to earn great returns. Eventually, it will help you to create great wealth on your investments. So if you are investing in a SIP, you do not need to think about the ups and downs of the market cycle, as the cost automatically gets averaged out.

Number 2: Power of compounding:

Warren Buffet started investing at the age of 14, but his money started to grow exponentially when he was 50. Power of compounding is often referred to as the eighth wonder of the world. And here, you must be thinking, what this power of compounding means? Under the power of compounding, you not only get returns on the money which has been invested but also on the gains. And this way you can create a great amount of wealth over a period of time. Let’s suppose, in one year, you have invested Rs 1 lakh in a mutual fund. Its one-year return is 15 percent. So, by the end of the year, this amount will be Rs 1 lakh 15 thousand. What power of compounding does is, in the next year (assuming the rate of return if 15 percent), it will provide the return on Rs 1 lakh 15 thousand, instead of your original investment of Rs 1 lakh. So, this way, in the second year, you will be getting a return on money that you have invested, and on the gain from the previous year. By the end of the second year, the amount would be Rs 1 lakh 32 thousand.

Is SIP really create wealth

If you are asking this question, the answer may not be yes always. All the investment are subject to market risk. Moreover, the performance of the mutual funds is based on the effectiveness of the fund manager. We need to accept the reality that most of the Fund manager are not real experts. The performance of many mutual funds and it is performance based on SIP is as under.

Conclusion

If you want to create SIP, you shall be prepared to wait for longer period and watchful about the market. The exit shall be also at the appropriate time so that you will make profit. From the above, none of the mutual fund has outperformed the NIFTY index and failed when there is a free fall in nifty and eroded the capital. This has happened when the Nifty fall heavily in 2020.  Hence, we need to understand the risk in Mutual funds and market securities and invest carefully based on out risk appetites

Source https://bluechipindia.co.in/    NSE - National Stock Exchange of India Ltd. (nseindia.com)

 

Data Security and Identity theft

 

Data Security and Identity theft

When I was kid, my mother used to say whatever, you do it is known to your consciousness and GOD. It is nothing but to caution from doing wrong things and instill a fear in my mind that I am being watched by GOD always. It is believed by many that your past, present, and future can be decoded though astrology.  The above are myth and belief.

Let us come to the reality, are we being watched, or are we being followed, is some decode our secrets, the answer is yes. It may be happening with our knowledge or without our knowledge. Sometimes we are sharing your information without understanding the implication; sometime it is through unfair means by unscrupulous person either though stealing or purchased.

1.       We are being tracked by Google about my movement and it provide me a report covering the distance travelled, places/ cities visited during a specific time frame. This is possible though tracking our mobile phone. We gave all our information.

2.       In our Facebook we are seeing advertisement on the product we have purchased recently or browsed recently on the internet.

3.       If we use credit for bigger purchase, we get call from many other credit card providers for credit cards with big offers. Without our asking, card limit is enhanced.

4.       If we pay a hospital bill or purchase of medicines though electronic payment, we are getting a call for insurance policy

5.       If Our bank balance increased substantially, we are getting call for investment option and if reduced substantially we are getting loan offers

6.       But the bulk of the losses last year, $43 billion, stemmed from identity theft scams where criminals interact directly with consumers to steal their information through methods such as robocalls and phishing emails. Victims of these scams lost $1,100 on average, according to Javelin. 

7.        “Identity fraud has evolved and now reflects the lengths criminals will take to directly target consumers in order to steal their personally identifiable information,” says John Buzzard, a lead fraud and security analyst with Javelin Strategy & Research.

May be the day is not too far when we order a Pizza online, we will be guided by the system, based on our previous order, health conditions, and financial position, and payment options available with us, a pizza which may be plain not spicy, without any cheese over it.

Data Security

Data security refers to the process of protecting data from unauthorized access and data corruption throughout its lifecycle. Data security includes data encryption, hashing, tokenization, and key management practices that protect data across all applications and platforms.

Ø  Cloud data security – Protection platform that allows you to move to the cloud securely while protecting data in cloud applications.

Ø  Data encryption – Data-centric and tokenization security solutions that protect data across enterprise, cloud, mobile and big data environments.

Ø  Hardware security module -- Hardware security module that guards financial data and meets industry security and compliance requirements.

Ø  Key management -- Solution that protects data and enables industry regulation compliance.

Ø  Enterprise Data Protection – Solution that provides an end-to-end data-centric approach to enterprise data protection.

Ø  Payments Security – Solution provides complete point-to-point encryption and tokenization for retail payment transactions, enabling PCI scope reduction.

Ø  Big Data, Hadoop and IofT data protection – Solution that protects sensitive data in the Data Lake – including Hadoop, Teradata, Micro Focus Vertica, and other Big Data platforms.

Ø  Mobile App Security - Protecting sensitive data in native mobile apps while safeguarding the data end-to-end.

Ø  Web Browser Security - Protects sensitive data captured at the browser, from the point the customer enters cardholder or personal data, and keeps it protected through the ecosystem to the trusted host destination.

Ø  eMail Security – Solution that provides end-to-end encryption for email and mobile messaging, keeping Personally Identifiable Information and Personal Health Information secure and private.

In addition to the above, many countries has imposed regulation that all the financial data should be kept in their own countries and even if processing is done outside the country, it shall be transferred and stored in the country within 24 hours.

Self-Protection

Despite all, are we safe or our information are safe and secured, the answer is NO.  The information is wealth and it is being sold by money.  If yes how to protect us in this e-world.

1.       The emails account and mobile phone connected to financial transaction or your online transactions shall distinct one and do not connect it with any social media  Never receive any calls on these phone or answer any emails unless you are sure about the caller. May be ordinary phone will do and if you use a smart phone do not download unnecessary apps into it.

2.       Use a separate email for social media

3.       Never share your personal email address and phone to the public network unless you are sure about the web page.

4.       Never be greedy. In this world nothing is free and no free lunch.

5.       Destroy private records and statements. Tear up – or, if you prefer, shred – credit cards statements, solicitations, and other documents that contain private financial information.

6.       Secure your mail. Empty you mailbox quickly, lock it or get a P.O. box so criminals don’t have a chance to snatch credit card pitches. Never mail outgoing bill payments and checks from home. They can be stolen from your mailbox and the payee’s name erased with solvents. Mail them from the post office or another secure location.

7.       Safeguard your Social Security number. Never carry your card with you, or any other card that may have your number, like a health insurance card. Don’t put your number on your checks. It’s the primary target for identity thieves because it gives them access to your credit report and bank accounts.

8.       Don’t leave a paper trail. Never leave ATM, credit card or gas station receipts behind.

9.       Never let your credit card out of your sight. Worried about credit card skimming? Always keep an eye on your card or, when that’s not possible, pay with cash.

10.   Know who you’re dealing with. Whenever anyone contacts you asking for private identity or financial information, make no response other than to find out who they are, what company they represent and the reason for the call. If you think the request is legitimate, contact the company yourself and confirm what you were told before revealing any of your personal data.

11.   Take your name off marketers’ hit lists. In addition to the national Do-Not-Call registry  you can also cut down on junk mail and opt out of credit card solicitations.

12.   Be more defensive with personal information. Ask salespeople and other if information such as Social Security or driver’s license number is absolutely necessary. Ask anyone who does require your Social Security number about their privacy policy and that you do not want your information given to anyone else.

13.   Monitor your credit report. Obtain and thoroughly review your credit report (check for a free copy at www.Annualcreditreport.com or by calling 877-322-8228) at least once a year to check for suspicious activity. If you find something, alert your card company or the creditor immediately. You may also look into credit protection services, which alerts you any time a change takes place with your credit report.

14.   Review your credit cards statements carefully. Make sure you recognize the merchants, locations and purchases listed before paying the bill. If you don’t need or use department-store or bank-issued credit cards, consider closing the accounts.

Let us be safe and get ourselves protected always.

******************************

Based on Data collected though various webpages 

CENTRAL BANK DIGITAL CURRANCY – A NEW NORMAL IN NEAR FUTURE.

 

CENTRAL BANK DIGITAL CURRANCY – A NEW NORMAL IN NEAR FUTURE.

A central bank digital currency (CBDC) uses an electronic record or digital token to represent the virtual form of a fiat currency of a particular nation (or region). A CBDC is centralized; it is issued and regulated by the competent monetary authority of the country. A central bank digital currency (CBDC) utilizes technology to represent a country's official currency in digital form. Unlike decentralized crypto currency projects like Bitcoin, a CBDC would be centralized and regulated by a country's monetary authority.

 

Except as currency notes, all other use of paper in the modern financial system, be it as bonds, securities, transactions, communications, correspondences or messaging – has now been replaced by their corresponding digital and electronic versions. On anecdotal evidence, use of physical cash in transactions too has been on the decline in recent years, a trend further reinforced by the ongoing Covid19 pandemic. These developments have resulted in many central banks and governments stepping up efforts towards exploring a digital version of fiat currency.

.CBDC is a digital or virtual currency but it is not comparable to the private virtual currencies that have mushroomed over the last decade. Private virtual currencies sit at substantial odds to the historical concept of money. They are not commodities or claims on commodities as they have no intrinsic value; some claims that they are akin to gold clearly seem opportunistic. Usually, certainly for the most popular ones now, they do not represent any person’s debt or liabilities.

To sum up, CBDC is the same as currency issued by a central bank but takes a different form than paper (or polymer). It is sovereign currency in an electronic form and it would appear as liability (currency in circulation) on a central bank’s balance sheet. The underlying technology, form and use of a CBDC can be moulded for specific requirements. CBDCs should be exchangeable at par with cash.

Design Features

Availability

Currently, access to digital central bank money is limited to central bank operating hours, traditionally less than 24 hours a day and usually five days a week.8 CBDCs could be available 24 hours a day and seven days a week or only during certain specified times (such as the operating hours of largevalue payment systems). CBDC could be available permanently or for a limited duration (eg it could be created, issued and redeemed on an intraday basis).

 Anonymity

Token-based CBDC can, in principle, be designed to provide different degrees of anonymity in a way that is similar to private digital tokens.9 A key decision for society is the degree of anonymity vis-à-vis the central bank, balancing, among other things, concerns relating to money laundering, financing of terrorism and privacy.

Transfer mechanism.

The transfer of cash is conducted on a peer-to-peer basis, while central bank deposits are transferred through the central bank, which acts as an intermediary. CBDC may be transferred either on a peer-to-peer basis or through an intermediary, which could be the central bank, a commercial bank or a third-party agent.

 Interest-bearing.

As with other forms of digital central bank liabilities, it is technically feasible to pay interest (positive or negative) on both token- and account-based CBDCs. The interest rate on CBDC can be set equal to an existing policy rate or be set at a different level to either encourage or discourage demand for CBDC.11 Both non-interest bearing and interest bearing accounts could be used for retail or wholesale payment transactions. The payment of (positive) interest would likely enhance the attractiveness of an instrument that also serves as a store of value.

Limits or caps.

Different forms of quantitative limits or caps on the use or holdings of CBDC are often mentioned as a way of controlling potentially undesirable implications or to steer usage in a certain direction. For example, limits or caps could make a CBDC less useful for wholesale rather than retail payments. At present, such limits or caps on holdings/use are most easily envisioned in non-anonymous account-based systems.

 

What is the need for a CBDC?

While interest in CBDCs is near universal now, very few countries have reached even the pilot stage of launching their CBDCs. The adoption of CBDC has been justified for the following reasons:-

i.        Central banks, faced with dwindling usage of paper currency, seek to popularize a more acceptable electronic form of currency (like Sweden);

ii.        Jurisdictions with significant physical cash usage seeking to make issuance more efficient (like Denmark, Germany, or Japan or even the US);

iii.        Central banks seek to meet the public’s need for digital currencies, manifested in the increasing use of private virtual currencies, and thereby avoid the more damaging consequences of such private currencies.

 In addition, CBDCs have some clear advantages over other digital payments systems – payments using CBDCs are final and thus reduce settlement risk in the financial system. Imagine a UPI system where CBDC is transacted instead of bank balances, as if cash is handed over – the need for interbank settlement disappears. CBDCs would also potentially enable a more real-time and cost-effective globalization of payment systems. It is conceivable for an Indian importer to pay its American exporter on a real time basis in digital Dollars, without the need of an intermediary. This transaction would be final, as if cash dollars are handed over, and would not even require that the US Federal Reserve system is open for settlement. Time zone difference would no longer matter in currency settlements – there would be no ‘Herstatt’ risk.

A pilot survey conducted by the Reserve Bank on retail payment habits of individuals in six cities between December 2018 and January 2019, results of which were published in April, 2021 RBI Bulletin (please see charts below) indicates that cash remains the preferred mode of payment and for receiving money for regular expenses. For small value transactions (with amount up to ₹500) cash is used predominantly.

There is thus a unique scenario of increasing proliferation of digital payments in the country coupled with sustained interest in cash usage, especially for small value transactions. To the extent the preference for cash represents a discomfort for digital modes of payment, CBDC is unlikely to replace such cash usage. But preference for cash for its anonymity, for instance, can be redirected to acceptance of CBDC, as long as anonymity is assured.

CBDC and the Banking System

CBDCs, depending on the extent of its use, can cause a reduction in the transaction demand for bank deposits. Since transactions in CBDCs reduce settlement risk as well, they reduce the liquidity needs for settlement of transactions (such as intra-day liquidity). In addition, by providing a genuinely risk-free alternative to bank deposits, they could cause a shift away from bank deposits which in turn might reduce the need for government guarantees on deposits (Dyson and Hodgson, 2016).

21. At the same time reduced disintermediation of banks carries its own risks. If banks begin to lose deposits over time, their ability for credit creation gets constrained. Since central banks cannot provide credit to the private sector, the impact on the role of bank credit needs to be well understood. Plus, as banks lose significant volume of low-cost transaction deposits their interest margin might come under stress leading to an increase in cost of credit.

 There is another risk of CBDCs that could be material. Availability of CBDC makes it easy for depositors to withdraw balances if there is stress on any bank. Flight of deposits can be much faster compared to cash withdrawal. On the other hand, just the availability of CBDCs might reduce panic ‘runs’ since depositors have knowledge that they can withdraw quickly. One consequence could be that banks would be motivated to hold a larger level of liquidity which could result in lower returns for commercial banks.

CBDC and Technology Risk

CBDC ecosystems may be at similar risk for cyber-attacks as the current payment systems are exposed to. Further, in countries with lower financial literacy levels, the increase in digital payment related frauds may also spread to CBDCs. Ensuring high standards of cyber security and parallel efforts on financial literacy is therefore essential for any country dealing with CBDC.

27. Absorption of CBDCs in the economy is also subject to technology preparedness. The creation of population scale digital currency system is contingent upon evolution of high speed internet and telecommunication networks and ensuring the wider reach of appropriate technology to the general public for storing and transacting in CBDCs.

 

Legal Framework

Although CBDCs are conceptually no different from banknotes, introduction of CBDC would require an enabling legal framework since the current legal provisions are made keeping in mind currency in paper form. Under the Reserve Bank of India Act, 1934, the Bank is empowered to “…regulate the issue of bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage” (Preamble).  Even though CBDCs will be a primarily technology driven product, it will be desirable to keep the legislation technology neutral to enable coverage of a variety of technology choices.

Conclusion

There is new era will start in India thereby the cost of printing money in paper form will vanish and Digital currency and technology driven payment methods will stay and continue to grow. The digital currency will also help in cross border transaction and trade finance activity. The Pandemic on one hand helped us to think how to perform all transaction though electronic form and digitally. Already there is development seen in digitalisation of trade activity. I am of the view the day is not too far to transfer cross border funds from my mobile though Fintech instead of Banks.

² https://law.stanford.edu/projects/central-bank-digital-currencies-a-transatlantic-perspective/

³ https://www.federalreserve.gov/newsevents/speech/quarles20210628a.htm

Reserve Bank of India - Speeches (rbi.org.in)