UPI Incentive Scheme: To promote small-value UPI transactions in the fiscal year 2024–2025, the Indian government has implemented an incentive program of ₹1,500 crore for banks. Banks that maintain a dependable UPI infrastructure will be eligible for a 0.15% incentive under this program for payments under ₹2,000.
In FY 2024–2025, the Union Cabinet has authorized a ₹1,500 crore incentive plan for banks to encourage Unified Payments Interface (UPI) transactions under ₹2,000. A component of the compensation is dependent on banks maintaining a dependable UPI infrastructure, and banks will earn a 0.15% incentive on such transactions done by small merchants. Without charging merchant fees, the program seeks to increase the use of digital payments, especially among small firms.
The government recently introduced an incentive program for the “promotion of low-value BHIM-UPI transactions Person to Merchant (P2M)” to maintain the UPI ecosystem’s affordability and accessibility for all users. The acquiring bank and other participating parties would be eligible for an incentive at the rate of 0.15% per transaction value for person-to-merchant (P2M) UPI transactions that are made to small merchants and have a value of less than Rs 2,000.
The circular states that “the scheme, which has an outlay of around Rs 1,500 crore for 2024-25, will have the government pay incentive to the acquiring bank (merchant’s bank) and then share among other stakeholders, namely the issuer bank (customer’s bank), payment service provider bank (accompanies customer onboarding on UPI apps and API integrations), and app providers (TPAPs).”
Cabinet Approves ₹1,500 Crore UPI Incentive Scheme for Banks
Scheme Approval
₹1,500 crore incentive for FY 2024–25
Eligible Transactions
UPI payments below ₹2,000
Incentive Rate
0.15% of the transaction value
Bank Performance
Link 20% of the incentive depends on UPI reliability
Exclusions
Payments above ₹2,000 not eligible
Objective
Expand UPI adoption, support small merchants
Total Transaction Target
₹20,000 crore in FY 2024-25
FY 2023-24 Incentives
₹3,631 crore (including RuPay incentives)
UPI Incentive Scheme: How would the average person gain from this?
When there is a large MDR on credit cards or other payment transactions, many retailers usually pass this charge on to customers by charging them more. This new incentive program, however, will incentivize banks, payment service providers, and third-party service providers (TPAPs) to refrain from charging MDR, particularly for small-ticket UPI transactions.
Now, this expense won’t eventually trickle down to the end user, or you, because the acquiring bank won’t charge MDR to the retailers. This implies that you won’t have to worry about MDR if you keep making low-value payments (i.e., less than Rs 2,000).
Additionally, a bank’s ability to maintain high system uptime and a low technical drop percentage determines roughly 20% of the incentive amount. This will guarantee that people may access effective, round-the-clock UPI transactions.
How will this help both big and small retailers?
According to the circular, “80% of the admitted claim amount by the acquiring banks will be disbursed without any conditions for all the quarters of the scheme.”
This implies that 80% of all claims submitted by stakeholders under this program will be fully and unconditionally honored. Only the following circumstances will result in the remaining 20% being paid out:
a) Only when the acquiring bank’s technical drop is less than 0.75% will 10% of the acknowledged claim be given;
b) Only when the acquiring bank’s system uptime exceeds 99.5% will the remaining 10% of the acknowledged claim be made available.
No significant incentives have been introduced for major retailers. Similarly, no incentives—not even for tiny merchants—have been provided for purchases above Rs 2,000.
