Cabinet Approves ‘Incentive Scheme’ For Low-Value UPI Transactions

SUMMARY

The scheme, with an estimated outlay of INR 1,500 Cr, will incentivise low-value BHIM-UPI transactions to encourage usage among small merchants

The incentive will be provided at the rate of 0.15% per transaction value for transactions up to INR 2,000 pertaining to the category of small merchants

With this move, the government aims to penetrate UPI from tier III to VI cities, by promoting products, including UPI 123PAY and UPI Lite

The Union Cabinet today approved an ‘incentive scheme’, aimed at promoting low-value BHIM-UPI transactions for the financial year 2024-25.

The scheme, with an estimated outlay of INR 1,500 Cr, will incentivise low-value BHIM-UPI transactions to encourage usage among small merchants.

The incentive will be provided at the rate of 0.15% per transaction value for transactions up to INR 2,000 pertaining to the category of small merchants, the government said in a statement.

“The scheme will 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, it added.

With this initiative, the government aims to penetrate UPI in tier III to VI cities, by promoting products including UPI 123PAY and UPI Lite. Besides, the scheme focuses on uplifting the payment system participants in building a secure digital payment infrastructure. This will contribute to the government’s vision of a cashless economy.

In each quarter of the programme, 80% of the approved claim amount from the acquiring banks will be distributed unconditionally.

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

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

The development comes at a time when homegrown UPI is rapidly being adopted by the citizens. In February, the UPI transactions surpassed 16.11 Bn mark with a total value of INR 21.96 Lakh Cr, surging 20% year-on-year (YoY).

However, the number of transactions in the month under review dropped 5% month-on-month (MoM) from 16.99 Bn in January and 3.7% from 16.73 Bn in December 2024.

Last week, bankers proposed the Centre to bring back the merchant discount rate (MDR) on transactions made through UPI and RuPay debit cards.

Additionally, the government is also pushing UPI beyond geographical borders. Today, the National Payments Corporation of India’s (NPCI) international payment arm partnered with full-stack payments infrastructure firm HitPay to facilitate UPI payments across Singapore.

Earlier this year,the authority partnered with Middle East-based payment solution provider Magnati to expand UPI merchant payments in the UAE.

Besides, NPCI is also looking to curb UPI-related fraud cases in the country by getting rid of the ‘collect’ request feature for merchant payments in a phased manner.