UPI Incentive Scheme

UPI Incentive Scheme

Sub : Eco

Sec : Monetary policy

Context:

• The Union Cabinet has approved an incentive scheme for Unified Payments Interface (UPI) payments of less than ₹2,000 for FY 2024-25.
• The scheme has an outlay of ₹1,500 crore to promote digital payments.

Key Features of the Incentive Scheme

• Eligibility: Payments made to small merchants using UPI.
• Incentive Structure:
  • Banks will receive a 15% incentive for eligible transactions.
  • One-fifth of this incentive is linked to the performance and reliability of the bank’s UPI infrastructure.
• Exclusions: No incentive is provided for transactions above ₹2,000.

Objective of the Scheme

• Encouraging wider UPI adoption among banks and merchants.
• Ensuring cost-free acceptance of small digital payments by merchants.
• Reducing the financial burden on small retailers, as card transactions typically involve a merchant fee.

Government’s Rationale

• The incentive is structured to balance UPI transaction growth and minimize fiscal burden.
• The outlay has been gradually reduced as digital transactions have increased.

Target for FY 2024-25

• The government aims for 20,000 crore in total transaction volumes during the financial year.

Previous Incentive Payouts

• FY 2023-24: ₹3,631 crore was paid to banks, which is higher than the previous two years combined.
• This includes incentives for transactions made using RuPay debit cards, developed by the National Payments Corporation of India (NPCI) as a domestic alternative to Visa and Mastercard.