Exclusive: Centre plans Rs 5,016 crore incentive to promote RuPay, BHIM-UPI

Digital payment growth India, Rupay debit cards, UPI: Worried by the mixed results in digital payment ecosystem growth, the Finance Ministry plans to extend the incentives on low-value transactions through RuPay Debit Cards and BHIM-UPI for the third year while nearly doubling the budgetary outlay to attract more players.

The Ministry plans to infuse Rs 5,016 crore during fiscal year 2023–24—up from Rs 2,600 crore in 2022–23—to compensate for the discontinued “merchant discount rate” (MDR) that was to be collected as a transaction charge by the merchant and paid to his acquirer bank.

Under the scheme, for low-volume transactions that use RuPay cards at point-of-sale or in e-commerce, the merchant’s acquirer bank will get 0.4 per cent—capped at Rs 100—as an incentive.

In the case of industry programmes that involve the use of RuPay cards in insurance, mutual funds, government, education, railways, agriculture, fuel, jewellery, hospitals, telecom, utility payments, and business or personal services, the incentive will be 0.15 per cent of the transaction, capped at Rs 6.

Similarly, for person-to-merchant (P2M) payments that use BHIM-UPI for transactions up to Rs 2,000, the acquirer bank will get 0.25 per cent of the transaction amount as an incentive. For industry programmes, the incentive would be 0.15 per cent of the transaction.

The scheme was introduced in fiscal 2021–22 with an outlay of Rs 1,450 crore to offset the lost MDR, which the acquirer bank subsequently shared with the card-issuing bank (the issuer bank) and the network operator. In the case of BHIM-UPI, the acquirer bank shared the MDR with issuer banks as well as the payer’s payment service providers, third-party app providers, and other system participants.

Digital payment transactions in India have been expanding, but the results have been mixed, with UPI growing massively in both volume and value terms—up 82 per cent and 105 per cent, respectively—in fiscal 2022–23 over the previous year. However, RuPay witnessed a sharp decline of 13.7 per cent in volume terms, even though it ticked up 4.2 per cent in value terms during the same period.

The mixed results have spurred the Ministry to tweak the scheme on the RuPay debit card as well as to add UPI Lite, UPI LiteX, and UPI Conversational Payments—Hello UPI in the app and UPI 123Pay on the BHIM-UPI platform—with the stipulation that at least 5 per cent of BHIM-UPI P2M transactions be on UPI Lite and UPI LiteX during the last quarter of the scheme.

UPI Lite offers a wallet in the BHIM-UPI app for an amount of up to Rs 2,000 on a smartphone, eliminating the need for the user to first obtain electronic authorisation from his bank while making the payment. UPI LiteX enables users to make transactions even in areas with no internet connectivity, such as remote locations, etc.

As per sources, the scheme has been approved by the Expenditure Finance Committee, and it now awaits the Cabinet's approval before the disbursement can start via quarterly mode. It must be noted that this time it is being executed by the Department of Financial Services (DFS) as “Promotion of Digital Payments” was transferred from the Ministry of Electronics and Information Technology (MeitY) to DFS in July 2023, they said.