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

The incentive scheme, with an outlay of Rs 1,500 crore, is for promotion of small-value BHIM-UPI (P2M) transactions up to Rs 2,000. 

Significance of the incentive scheme

• Unified Payments Interface (UPI) is an instant real-time payment system developed by NPCI to facilitate inter-bank transactions through mobile phones.

• The promotion of digital payments is an integral part of the government’s strategy for financial inclusion and provides wide-ranging payment options to the common man.

• UPI services are also available in Singapore, France, UAE, Sri Lanka, Bhutan, Nepal and Mauritius.

• As per the RBI, Merchant Discount Rate (MDR) up to 0.90 per cent of transaction value is applicable across all card networks (for Debit cards).

• According to NPCI, MDR up to 0.30 per cent of transaction value is applicable for UPI P2M transactions. 

• 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.

• During the last financial year, incentive payouts by the government for BHIM-UPI were Rs 3,268 crore.

• 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 customers on UPI app / API integrations) and App Providers (TPAPs).

How will it be implemented?

• An incentive at the rate of 0.15 per cent per transaction value will be provided for transactions up to Rs 2,000 pertaining to the category of small merchants. 

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

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

a) 10 per cent of the admitted claim will be provided only when the technical decline of the acquiring bank will be less than 0.75 per cent.

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

Benefits of the scheme:

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

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

iii) 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.

iv) Supports the government’s vision of a less-cash economy through formalising and accounting the transaction in digital form.

v) Efficiency gain: 20 per cent 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.

vi) Judicious balance of both the growth of UPI transactions and the minimum financial burden on the government exchequer.

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