Mumbai: Bank of Baroda has launched a pilot programme allowing small and medium-sized merchants to offer cashback and loyalty rewards through the central bank digital currency (CBDC). The initiative, developed under the Reserve Bank of India’s (RBI) guidance, is aimed at boosting CBDC adoption while helping local businesses retain customers.
CBDC for Merchant Loyalty Programmes
The programme enables merchants banking with Bank of Baroda to design and manage their own cashback offers using programmable digital currency. Currently, small retailers, grocery stores, and pharmacies registered on the bank’s platform can create custom campaigns without additional infrastructure investment. Merchants can define the duration, cashback percentage, and expiration period for these offers.
Customers using the Bank of Baroda digital rupee app will receive cashback in the form of CBDC, which can be redeemed only at the issuing merchant’s store before it expires. At present, the initiative is restricted to the bank’s account holders.
Programmability of Digital Rupee
Programmable CBDC allows businesses to impose conditions on digital currency use. For example, cashback issued through this system can be restricted to specific stores or product categories. This feature provides greater flexibility for small merchants, allowing them to offer targeted rewards similar to those of large retailers.
Bank of Baroda’s executive director, Sanjay Mudaliar, stated that the initiative is the first of its kind in India’s banking sector. The programme is expected to enhance digital payment adoption while providing local businesses with tools to increase customer engagement.
CBDC Adoption and Impact on Small Businesses
This initiative aligns with the RBI’s broader push to integrate CBDC into India’s payment ecosystem. By offering cashback in digital rupees, the bank aims to increase familiarity with CBDC among both merchants and consumers.
The pilot comes at a time when digital transactions are expanding, and small businesses are looking for cost-effective ways to compete with larger players. The ability to offer tailored loyalty programmes without significant investment could make digital payments more attractive for local retailers.
While the programme is currently in a testing phase, its success could determine how CBDC is used in merchant transactions in the future.
