Cabinet approves Rs 1,500 crore incentive scheme to boost low-value UPI transactions

The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved a new incentive scheme worth Rs 1,500 crore to encourage low-value BHIM-UPI transactions (Person-to-Merchant) for the financial year 2024-25.

The scheme will be implemented from 01.04.2024 to 31.03.2025 and focuses on supporting small merchants by allowing them to accept digital payments without extra costs.

Focus on small merchants and low-value transactions

The scheme applies to UPI transactions up to Rs 2,000 made at small merchant outlets. These transactions will qualify for an incentive of 0.15% of the transaction value. Large merchants will continue to offer zero fees on transactions up to Rs 2,000 but will not receive an incentive.

The government aims to make digital payments more accessible for small businesses, especially those in rural and semi-urban areas so that more customers can pay using BHIM-UPI.

Encouraging banks to maintain high uptime

Under this initiative, acquiring banks—the banks that process payments on behalf of merchants—will receive 80% of their admitted claims each quarter without any conditions. They can receive the remaining 20% if they meet two performance requirements.

First, their technical decline rate must remain below 0.75%, and second, their overall system must maintain an uptime of more than 99.5%.

This performance-based incentive is designed to ensure reliable service, minimize technical glitches, and guarantee that merchants and customers can depend on smooth digital payment operations round the clock.

Driving a less-cash economy

The government has set an ambitious target of reaching a total UPI transaction volume of Rs 20,000 crore in the 2024-25 fiscal year. The incentives will support the ongoing push to expand digital payment services to smaller towns and rural areas.

New payment solutions like UPI 123PAY, which works on feature phones, and UPI Lite, which enables offline transactions, are key parts of this expansion strategy.

Building on past efforts

The promotion of digital payments has been central to the government's financial inclusion goals and efforts to create a less-cash economy.

Since 2020, the government has waived the Merchant Discount Rate (MDR) for RuPay debit cards and BHIM-UPI transactions, encouraging more users and merchants to adopt digital platforms.

Over the past three financial years, government incentives have totalled more than Rs 7,000 crore, benefiting banks, payment service providers, and app providers. By covering their expenses through these incentives, the government aims to ensure that consumers and small merchants continue to have access to free or low-cost digital payment services.