The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the Incentive Scheme for Promotion of Low-Value BHIM-UPI Transactions (Person to Merchant – P2M) for the 2024-25 financial year. The press release said it aims to boost digital payments, focusing on small merchants and the indigenous BHIM-UPI platform.
- Timeline: April 1, 2024, to March 31, 2025
- Budget: Rs. 1,500 crore
- Target: UPI P2M transactions up to Rs. 2,000 for small merchants
Scheme Features and Payouts
The initiative eliminates the Merchant Discount Rate (MDR) for specific transactions and offers incentives, the release noted. It’s designed to ease costs for small merchants while encouraging banks to maintain reliable systems.
- Scope: Covers only small merchants for transactions up to Rs. 2,000
- Incentive: 0.15% per transaction value for small merchants
MDR and Incentive Breakdown:
- Small merchants:
- Zero MDR + 0.15% incentive (for transactions up to Rs. 2,000)
- Zero MDR, no incentive (for transactions above Rs. 2,000)
- Large merchants:
- Zero MDR, no incentive (for all amounts)
Payout Structure:
- 80% of approved claims paid upfront with no conditions
- 20% conditional:
- 10% if technical decline stays below 0.75%
- 10% if system uptime exceeds 99.5%
Benefits for Users and Merchants
The Cabinet highlighted benefits like seamless payments and a push toward a less-cash economy, emphasizing convenience and cost savings.
- Citizens: Fast, secure payments with no extra charges
- Small Merchants: Free UPI access, plus incentives to adopt digital payments
- Added Perks: Faster cash flow, digital footprints for credit access
- System Gains: Banks rewarded for high uptime and low technical declines, ensuring 24/7 service.
Objectives of the Plan
The scheme sets bold targets, the release added, aiming to expand UPI’s reach and strengthen payment infrastructure.
- Transaction Goal: 20,000 crore total volume in 2024-25
- BHIM-UPI Focus: Promote the homegrown platform
- Rural Expansion:
- Increase UPI use in tier 3-6 cities and remote areas
- Expand UPI 123PAY (feature phone transactions) and UPI Lite/LiteX (offline payments)
- Bank Standards:
- Maintain high uptime (over 99.5%)
- Keep technical decline below 0.75%
- Fiscal Balance: Grow UPI while minimizing government spending
Background and Funding History
Promoting digital payments is central to the government’s financial inclusion strategy, offering diverse payment options. Typically, MDR—up to 0.90% for debit cards (RBI) or 0.30% for UPI P2M (NPCI)—covers industry costs.
Since January 2020, amendments to the Payments and Settlement Systems Act, 2007, and Section 269SU of the Income-tax Act, 1961, made MDR zero for RuPay Debit Cards and BHIM-UPI.
Past Incentives (₹ crore):
- FY 2021-22: Rs. 1,389 (RuPay: 432, BHIM-UPI: 957)
- FY 2022-23: Rs. 2,210 (RuPay: 408, BHIM-UPI: 1,802)
- FY 2023-24: Rs. 3,631 (RuPay: 363, BHIM-UPI: 3,268)
Payment Flow: Government funds acquiring banks, which share with issuing banks, payment service providers, and app providers (TPAPs).
This scheme builds on that legacy, supporting payment system participants in delivering robust, secure digital infrastructure, the release cited.