Budget muted on UPI, RuPay debit card incentives; sops down by 78%

The Union Budget for 2025-26 on Friday slashed by 78 per cent a government financial incentive to promote small value Unified Payments Interface (UPI) and RuPay debit card transactions.

 

The Budget earmarked Rs 437 crore to promote such transactions in financial year 2026 (FY26), compared to Rs 2,000 crore allocated the year before.

 

However, the final allocation of funds to promote these peer-to-merchant (P2M) UPI transactions and RuPay debit card payments is on the higher side than the initial outlay. The government originally set aside Rs 1,441 crore in FY25 as incentives and later revised to Rs 2,000 crore.

 

This is the second time in a row when incentives to promote such digital payments have been slashed after the scheme was introduced in FY23. The government approved the incentive in April 2022 with an initial outlay of Rs 2,600 crore.

 

“There may be a slight increase in the final outlay for this provision but it would still not be enough to cover the cost for P2M transactions. We estimate that at least Rs 4,000 to Rs 5,000 crore is a need in the form of subsidies for the industry to cover for above costs since UPI is also growing,” said Mihir Gandhi, Partner and Payments Transformation and Fintech Leader, PwC India. 

 

The UPI incentive is alongside zero merchant discount rate (MDR) on all debit UPI transactions. MDR refers to a fee charged to merchants by payment processing companies or banks to execute a transaction. Banks and digital payment processing firms bear the costs of processing transactions on India’s real-time payments system.

 

“We are keenly awaiting the incentives for the period from April 2024 to now. The ecosystem players, banks and the players are awaiting it since the UPI incentives have not been paid for this financial year, specifically in the absence of a zero merchant discount rate (MDR),” said Vishwas Patel, Chairman, Payments Council of India (PCI). 

 

Gandhi added; “Now companies are earning revenue through other products by means of cross-selling. They (centre) may have also thought about allowing some slab-based MDR for specific UPI transactions this year. These could be two potential considerations when it comes to the incentives this year.”

 

The provision is for the payment of incentive to acquirer banks which is shared with issuer Banks, Payment Service Providers (PSPs) and third party App Providers. TPAPs refers to companies such as PhonePe, Google Pay, and Paytm, among others.

 

Stakeholders including banks, TPAPs and the National Payments Corporation of India (NPCI) incur a cost of about 0.25 per cent of a transaction value for processing a UPI P2M transaction, according to a PWC report.

 

The contribution of UPI to the cumulative digital payments ecosystem more than doubled in five years, rising from 34 per cent in 2019 to 83 per cent in 2024, according to data from the Reserve Bank of India’s (RBI) payment system report.

 

In 2024 alone, UPI clocked over 172 billion transactions. 

 

NPCI, the apex payments body, had requested incentivisation of BHIM (Bharat Interface for Money)-UPI and RuPay debit card transactions to create a cost-effective value proposition for ecosystem stakeholders, increase merchant acceptance footprints and faster migration from cash payments to digital payments, according to a press release by the Ministry of Electronics and IT.