Union Cabinet approved a ₹1,500 crore incentive scheme for BHIM-Unified Payments Interface (UPI) payments of less than ₹2,000 under Person-to-Merchant (P2M) category for financial year 2024–25. This initiative aims to minimize operational costs for various stakeholders within UPI ecosystem and boost digital payment adoption, especially by small merchants.
Key Highlights of UPI Incentive Scheme
Bank Incentive Structure:
Banks will be incentivized at a rate of 0.15% per UPI transaction (P2M) for payments below ₹2,000.
Performance-based Incentive: One-fifth of the incentive will depend on adequate performance of bank infrastructure over the year.
Disbursement Mechanism:
- 80% of the admitted claim amount will be disbursed each quarter without conditions.
- The remaining 20% reimbursement will be subject to meeting certain performance-based conditions.
No Incentive for Transactions Above ₹2,000:
The incentives are limited to small-value UPI transactions (below ₹2,000) to encourage small merchants and consumers.
Unlike credit and debit cards that charge merchant fees, UPI payments do not have such charges, which makes them a cost-effective option for merchants.
Benefits of UPI Incentive Scheme
Promotes Seamless and Secure Digital Payments: Encourages small merchants to accept UPI payments without bearing additional fees. Facilitates secure, faster, and convenient digital payments for consumers.
Boosts Digital Inclusion: Focus on increasing UPI penetration in Tier 3 to Tier 6 cities, rural areas, and remote regions.
Enhanced Access to Credit: Small merchants can build digital payment histories, enabling better access to credit and financial services.
Promotes BHIM-UPI Platform Usage: The government aims to achieve ₹20,000 crore in transaction volumes through BHIM-UPI in FY 2024–25.
Strengthens Digital Infrastructure: Supports payment system participants in building a robust and secure digital payments infrastructure.
Significance for Small Merchants
- UPI transactions do not carry merchant discount rates (MDR), unlike card-based payments, which typically involve fees paid by retailers.
- This incentive scheme allows small merchants to accept low-value digital payments at no cost, reducing reliance on cash transactions and promoting digital financial inclusion.
About UPI (Unified Payments Interface):
- Developed by: National Payments Corporation of India (NPCI).
- Features: UPI allows instant, real-time payments directly from one bank account to another.
- BHIM App: BHIM is a government-backed UPI app designed to promote seamless digital transactions.
- This initiative is part of India’s broader mission to achieve a cashless, digitally empowered economy while fostering inclusivity and transparency in the financial ecosystem.