MUMBAI: The Union cabinet on Wednesday approved an incentive scheme to promote low-value BHIM-UPI transactions, focusing on payments made to merchants. The Rs 1,500 crore initiative, running from April 1, 2024, to March 31, 2025, aims to boost digital adoption among small businesses.
Under the scheme, person-to-merchant (M) transactions up to Rs 2,000 will be incentivised. Small merchants will pay no merchant discount rate (MDR) and banks will receive an incentive of 0.15% per transaction. Large merchants will also benefit from zero MDR but will not be eligible for incentives. Transactions above Rs. 2,000 will remain MDR-free but without incentives.
“The incentive scheme on promoting low-value UPI transactions, which has been approved by the Cabinet today, will encourage digital payments and further ‘Ease of Living’,” Prime Minister Narendra Modi said in a post on X.
Incentives will be routed through acquiring banks, which will then distribute them among issuer banks, payment service providers, and app operators. The disbursement follows a structured model: 80% of the claim is released unconditionally, while the remaining 20% depends on performance. Banks meeting a technical decline rate below 0.75% receive 10%, with another 10% for system uptime exceeding 99.5%.
Industry leaders, however, find the scheme underfunded. “Continual growth, progress and penetration of UPI to the next 300 million Indians should be the only aim and goal for all of us. With zero MDR of UPI and the gobt allocating a paltry Rs 1,500 crore for processing transactions worth Rs 246.8 lakh crore in 2024, the entire ecosystem will be choked for funds needed for scaling and growth,” said Vishwas Patel, joint MD of Infibeam Avenues and chairman of the Payments Council of India. He said industry expected govt incentive to be above Rs 5,000 crore, higher than last year’s Rs 3,500 crore.
