The Union Cabinet approved an incentive scheme to promote low-value BHIM-UPI transactions, with a focus on payments to merchants. The Rs 1,500 crore initiative, which runs from April 1, 2024 to March 31, 2025, seeks to increase digital adoption among small businesses.
The scheme will incentivize person-to-merchant (M) transactions worth up to Rs 2,000. Small merchants will pay no merchant discount rate (MDR), while banks will receive a 0.15 percent incentive per transaction. Large merchants will benefit from zero MDR but will be ineligible for incentives. Transactions exceeding 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, who will distribute them to issuer banks, payment service providers, and app operators. The disbursement follows a structured model: 80% of the claim is released unconditionally, with the remaining 20% subject to performance. Banks with a technical decline rate of less than 0.75% receive 10%, with an additional 10% for system uptime greater than 99.5%.
Industry leaders, however, believe the scheme is underfunded. "The only goal for all of us should be the continuous growth, progress, and penetration of UPI among the next 300 million Indians. With no MDR for UPI and the government allocating only Rs1,500 crore for processing transactions worth Rs246.8 lakh crore in 2024, the entire ecosystem will be choked for funds needed for scaling and growth," said Vishwas Patel, joint managing director of Infibeam Avenues and chairman of the Payments Council of India. He stated that the industry expected the government incentive to be more than Rs 5,000 crore, up from Rs 3,500 crore last year.
