PMINDIA

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi today approved the ‘Incentive Scheme for promotion of low-value BHIM-UPI transactions Person to Merchant (P2M)’ for the financial year 2024-25 in the following manner:

i. The incentive scheme for promotion of low-value BHIM-UPI transactions (P2M) will be implemented at an estimated outlay of 1,500 crore, from 01.04.2024 to 31.03.2025.

ii. Only the UPI (P2M) transactions upto 2,000/- for Small Merchants are covered under the scheme.

iii. Incentive at the rate of 0.15% per transaction value will be provided for transactions upto Rs.2,000 pertaining to category of small merchants.

iv. For all the quarters of the scheme, 80% of the admitted claim amount by the acquiring banks will be disbursed without any conditions.

v. The reimbursement of the remaining 20% of the admitted claim amount for each quarter will be contingent upon fulfilment of the following conditions:

a) 10% of the admitted claim will be provided only when the technical decline of the acquiring bank will be less than 0.75%; and

b) The remaining 10% of the admitted claim will be provided only when the system uptime of the acquiring bank will be greater than 99.5%.

Benefits:

• Convenient, secure, faster cash flow, and enhanced access to credit through digital footprints.

• Common citizens will benefit from seamless payment facilities with no additional charges.

• Enable small merchants to avail of UPI services at no additional cost. As small merchants are price-sensitive, incentives would encourage them to accept UPI payment.

• Supports the Government’s vision of a less-cash economy through formalizing and accounting the transaction in digital form.

• Efficiency gain- 20% incentive is contingent upon banks maintaining high system uptime and low technical decline. This will ensure round-the-clock availability of payment services to citizens.

• Judicious balance of both the growth of UPI transactions and the minimum financial burden on the Government exchequer.

Objective:

• Promotion of indigenous BHIM-UPI platform. Achieving the target of 20,000 crore total transaction volume in FY 2024-25.

• Supporting the payment system participants in building a robust and secure digital payments infrastructure.

• Penetration of UPI in tier 3 to 6 cities, especially in rural & remote areas by promoting innovative products such as feature phone based (UPI 123PAY) & offline (UPI Lite/UPI LiteX) payment solutions.

• Maintain a high system uptime & minimize technical declines.

Background:

Promotion of digital payments is an integral part of the Government’s strategy for financial inclusion and provide wide-ranging payment options to the common man. The expenditure incurred by the digital payment industry while providing services to its customers / merchant is recovered through the charge of Merchant Discount Rate (MDR).

As per RBI, MDR upto 0.90% of transaction value is applicable across all card networks. (for Debit cards). As per NPCI, MDR upto 0.30% of transaction value is applicable for UPI P2M transaction. Since January 2020, to promote digital transactions, MDR was made zero for RuPay Debit Cards and BHIM-UPI transactions through amendments in section 10A in the Payments and Settlement Systems Act, 2007 and section 269SU of the Income-tax Act, 1961.

In order to support the payment ecosystem participants in effective delivery of services, “Incentive scheme for promotion of RuPay Debit Cards and low-value BHIM-UPI transactions (P2M)” has been implemented with due approval by the Cabinet. Year-wise incentive payout by the Government (in Rs. crore) during the last three financial years:

The incentive is paid by the Government to the Acquiring bank (Merchant’s bank) and  thereafter shared among other stakeholders: Issuer Bank (Customer’s Bank), Payment Service Provider Bank (facilitates onboarding of customer on UPI app / API integrations) and App Providers (TPAPs).