Govt approves Rs 1,500 crore incentive to boost small-value UPI payments
The government has approved a Rs 1,500 crore incentive to promote small-value BHIM-UPI (P2M) transactions of up to Rs 2,000. This initiative is designed to benefit everyday consumers and small merchants alike.
The Cabinet, chaired by Prime Minister Narendra Modi, approved the “Incentive Scheme for the Promotion of Low-Value BHIM-UPI Transactions (P2M)” for the financial year 2024-25, as announced by Information and Broadcasting Minister Ashwini Vaishnaw.
In a social media post on X, the Prime Minister expressed, “The incentive scheme for promoting low-value UPI transactions, approved by the Cabinet today, will encourage digital payments and further enhance the ‘Ease of Living.'”
The scheme is set to cover 55% of total merchant transactions, according to an official release.
Under the scheme, small merchants will receive an incentive of 0.15% per transaction value for BHIM-UPI transactions up to Rs 2,000. Throughout the course of the scheme, 80% of the admitted claim amount will be disbursed to acquiring banks without conditions. However, the remaining 20% will be released only upon meeting certain conditions.
This incentive will allow small merchants to offer UPI services at no extra cost, with the government highlighting that price-sensitive small merchants will be encouraged to adopt UPI payments.
The government’s push for digital payments is a key part of its broader strategy for financial inclusion, ensuring accessible payment options for the common man.
Vaishnaw also mentioned that UPI services are now available in several countries, including Singapore, France, UAE, Sri Lanka, Bhutan, Nepal, and Mauritius.
Unified Payments Interface (UPI) is an instant, real-time payment system developed by the National Payments Corporation of India (NPCI) to facilitate inter-bank transactions through mobile phones.
In the previous financial year, the government disbursed Rs 3,268 crore in incentives for BHIM-UPI transactions.
The incentives are paid directly to acquiring banks (merchant banks), which are then shared with other stakeholders such as Issuer Banks (customer banks), Payment Service Provider Banks (facilitating UPI app onboarding and API integrations), and Third-Party App Providers (TPAPs).
According to the Reserve Bank of India (RBI), a Merchant Discount Rate (MDR) of up to 0.90% applies to all debit card transactions. However, for UPI P2M transactions, MDR is capped at 0.30%. To further promote digital payments, MDR has been set to zero for RuPay Debit Cards and BHIM-UPI transactions since January 2020, following amendments in the Payments and Settlement Systems Act, 2007, and the Income-tax Act, 1961.
