Union Cabinet approves Rs 1,500 cr scheme to boost low-value BHIM-UPI txns

The Union Cabinet has approved a Rs 1,500 crore incentive for promoting low-value BHIM-UPI peer-to-peer merchant (P2M) transactions for 2024-25.

 

The scheme is being rolled out to promote the BHIM-UPI platform to achieve target volumes of 200 billion in FY25.

 

This is the first time the Centre has defined small and large merchants in the context of outlining BHIM-UPI incentives.

 

The Centre has set an incentive rate of 0.15 per cent for a transaction value of up to Rs 2,000 made to small merchants, while large merchants in the same value bracket will receive no incentive.

 

For transactions exceeding Rs 2,000, there will be no incentive for anyone.

 

 

“The incentive scheme on promoting low value UPI transactions, which has been approved by the Cabinet today (Wednesday) will encourage digital payments and further ‘Ease of Living’,” Prime Minister Narendra Modi said in a post on social media X.

 

However, industry players are not happy with the allocation, with many raising concern about keeping up the growth momentum.

 

At present, banks and firms handling digital payments bear the cost of processing transactions on Unified Payments Interface (UPI).

 

The merchant discount rate (MDR) refers to a fee that merchants pay banks or companies processing payments for executing a transaction.

 

“With a zero MDR of UPI and the government allocating only Rs 1,500 crore for processing transactions of Rs 246.82 trillion in 2024 to the ecosystem is just not going to be enough. It will choke the entire ecosystem for funds for scaling and growth,” said Vishwas Patel, joint managing director, Infibeam Avenues, and chairman, Payments Council of India (PCI).

 

According to industry estimates, incentives of Rs 4,000-5,000 crore are required to cover the cost of processing UPI transactions, which continue to be MDR-free.

 

“We don’t want to survive on government incentives. The only solution is for the government to allow us to charge a low controlled MDR of 25 bps (basis points) on UPI P2M transactions only for merchants with more than a Rs 40 lakh turnover. The incentives can continue for smaller merchants by offering them zero MDR,” Patel added.

 

Incentives for BHIM-UPI given by the government in FY24 were 3,268 crore. They were Rs 1,802 crore and Rs 957 crore in FY23 and FY22, respectively. About Rs 408 crore and Rs 432 crore were approved for promoting RuPay debit cards. 

 

Patel said the outlay was insufficient for the sector because of there being a funding winter, rising costs of deploying payment-acceptance mechanisms, and increasing compliance costs. 

 

“We welcome the Cabinet decision to incentivise low-value transactions of up to Rs 2,000 at the rate of 0.15 per cent for small merchants. We are hopeful that in the future a market-driven sustainable pricing framework (MDR regime) for low-value (P2M) transactions will evolve to incentivise all players,” said Jatinder Handoo, chief executive officer, Digital Lenders Association of India (DLAI).

 

The terms of the outlay state 80 per cent of the admitted claims by acquiring banks will be disbursed unconditionally. However, the rest will depend on meeting conditions such as banks having a technical decline of less than 0.75 per cent and having a system uptime of more than 99.5 per cent. 

 

The objective of the incentives includes promoting the BHIM-UPI platform and achieving the target of transaction volumes of Rs 20,000 crore in FY25, among others.