Cabinet approves ₹1,500 crore incentive for low-value BHIM-UPI transactions

The Union Cabinet, chaired by Prime Minister Narendra Modi, on Wednesday approved an incentive scheme worth ₹1,500 crore to promote low-value BHIM-UPI Person-to-Merchant (P2M) transactions for the financial year 2024-25.

"Our payment system is such that any person can use it, six countries- Singapore, France, UAE, Sri Lanka, Bhutan, and Mauritius have adopted it. This growth 210 lakh crore payments have been done through UPI," Union Minister Ashwini Vaishnaw said at a Cabinet briefing.

"To ensure no burden of MDR, an incentive scheme was created. Now it has been decided that there would be no transaction cost, also there would be incentives."

What's the incentive scheme?

The scheme, applicable from April 1, 2024, to March 31, 2025, offers an incentive of 0.15% per transaction value for UPI P2M transactions up to ₹2,000 by small merchants.

Under the scheme, 80% of the admitted claim amount by acquiring banks will be disbursed unconditionally each quarter.

The remaining 20% reimbursement will be performance-based: 10% will be released if the acquiring bank’s technical decline rate is below 0.75%, and the other 10% if system uptime exceeds 99.5%.

For transactions up to ₹2,000, small merchants will benefit from zero Merchant Discount Rate (MDR) and the 0.15% incentive, while large merchants will receive zero MDR but no incentive. Transactions exceeding ₹2,000 will incur zero MDR for both categories without additional incentives.

The scheme promises multiple benefits, including secure and seamless payments for citizens at no extra cost, enhanced credit access for merchants through digital footprints, and encouragement for small, price-sensitive merchants to adopt UPI.

"Efficiency gain- 20% incentive is contingent upon banks maintaining high system uptime and low technical decline. This will ensure round-the-clock availability of payment services to citizens," a government release said.