Cabinet approves “Incentive scheme” for promotion of low-value UPI transactions (P2M)

A big decision has been taken in the Union Cabinet regarding UPI. On Wednesday, March 19, the government approved an ‘incentive scheme’ aimed at promoting BHIM-UPI transactions with small transactions for the financial year 2024-25.

This scheme with an estimated cost of Rs 1500 crore will benefit small traders. According to the instructions, small merchants can get 0.15% incentive on UPI person-to-merchant (P2M) transactions up to Rs 2000. In contrast, large merchants will not get any incentive for such transactions. Under this scheme, small merchants will be given an incentive amount of 0.15% per transaction on transactions up to Rs 2000.

The official statement issued by the government states that the objective of this initiative is to facilitate convenient, safe and fast cash flow. Also, better access to loans is to be provided through digital transactions. This will provide the benefit of payment facilities to the common citizens without any additional charges.

The implementation of this incentive scheme will help small merchants to access UPI services without any additional cost. Since small merchants are price sensitive, these incentives will encourage them to accept UPI payments.

Every quarter, 80% of the accepted claim amount from the acquiring banks will be disbursed without any conditions. However, the remaining 20% ​​of the accepted claim amount for every quarter will be disbursed subject to several conditions. 

10% of the sanctioned claim will be disbursed only if the technical degradation of the acquiring bank is less than 0.75% and the remaining 10% of the sanctioned claim will be disbursed only if the system uptime of the acquiring bank is more than 99.5%. 

Objective of this scheme

• Promoting indigenous BHIM-UPI platform. 
• The aim of this initiative is to achieve a cumulative UPI transaction value of Rs 20,000 crore by FY 2024-25. 
• Since 2020, the government is promoting digital transactions by eliminating Merchant Discount Rate (MDR) on RuPay debit card and BHIM-UPI transactions. 
• In the last three years, the government has provided incentives worth over Rs 7,000 crore to banks and payment service providers to promote digital transactions. 
• To support payment system participants in developing a robust and secure digital payment infrastructure. 
• Expanding the reach of UPI from Tier 3 to Tier 6 cities, focusing on rural and remote areas, by introducing innovative products like feature phone based (UPI 123PAY) and offline (UPI Lite/UPI LiteX) payment solutions. 

Benefits of this scheme

1. Offers convenience, security, quick cash flow and improved credit access through digital footprint. 
2. Provides seamless payment options to the general public without any additional charges. 
3. Allows small businesses to use UPI services without incurring additional costs. Incentives can motivate them to adopt UPI payments. 
4. To support the government’s objective of promoting a cashless economy by documenting transactions digitally. 
5. Banks must maintain high system uptime and low technical degradation to be eligible for the 20% incentive, thereby guaranteeing the uninterrupted availability of payment services to the public.