India approves Rs 1,500 crore UPI incentive scheme

The Indian government has approved a new incentive plan to promote low-value UPI transactions. The scheme, worth Rs 1,500 crore, will focus on payments made by consumers to merchants. It is set to run from April 2024 to March 2025 and aims to encourage digital payment adoption among small businesses. Under this plan, transactions up to Rs 2,000 will offer benefits to small merchants, who will not have to pay a merchant discount rate (MDR). Banks will receive a 0.15% incentive on each transaction. Large merchants will also enjoy zero MDR but will not qualify for these incentives. Transactions over Rs 2,000 will remain MDR-free but will not have additional rewards. Prime Minister Narendra Modi announced the initiative, stating it will promote digital payments and improve the ease of living for citizens. Funds will be distributed through acquiring banks, which will allocate them to other financial entities. The funding structure allows for quick release of 80% of the claims, with the remaining 20% linked to performance metrics. Industry experts have raised concerns about the adequacy of this funding. Vishwas Patel, a prominent figure in the payments industry, expressed worries that the Rs 1,500 crore allocation is not enough for sustaining growth. He argues that the expected incentive should have been at least Rs 5,000 crore, especially given the high transaction volume UPI handles. As UPI continues to grow in India, stakeholders believe that increased financial support is crucial for its ongoing success.