Cabinet Approves INR 2,600 Cr Scheme To Incentivise RuPay, UPI-BHIM Transactions

The Union Cabinet on Wednesday (January 11) approved an INR 2,600 Cr scheme to promote the usage of RuPay debit cards and low-value Unified Payments Interface (UPI) transactions.

“The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the incentive scheme for promotion of RuPay debit cards and low-value BHIM (Bharat Interface for Money)-UPI transactions (person-to-merchant) for a period of one year from April 2022,” a release from the government said. 

The scheme, approved for the financial year 2022-23 (FY23), will provide financial incentive to acquiring banks to promote Point-of-Sale (PoS) and ecommerce transactions using the financial instruments. 

Acquiring banks are major financial institutions that have the authorisation to process transactions. As such, big merchants such as ecommerce firms have to partner with these acquiring banks to process debit card transactions. 

As per the government, the move will facilitate the building of a robust local digital payment ecosystem, including new products such as UPI Lite and UPI 123PAY. The incentives have been announced with an eye on further deepening the penetration of digital payments in the country across ‘all sectors and segments of the population.’

Reacting to the announcement, Vishwas Patel, chairman of Payments Council of India (PCI) and executive director of fintech startup Infibeam Avenues, said, “As industry we welcome the decision to outlay additional funds for Incentive scheme for the promotion of RuPay debit cards and low value UPI transaction (P2M). This will further provide momentum to the payment service operators to improve the infrastructure at the last mile in the deep corners of our country and will help in creating a robust digital payment ecosystem. Government should also ensure that the benefit is reaching the last leg of the value chain i.e. payment aggregators.”

This is the second such incentive scheme announced by the government in the past two years. In December 2021, the Centre announced an INR 1,300 Cr scheme to incentivise RuPay debit cards and low-value BHIM-UPI modes of payments for FY22.

It is pertinent to note that the now ratified incentives were announced by Finance Minister Nirmala Sitharaman in her Budget speech last year. 

In The Eye Of The Storm

The government has largely put its weight behind incentivising the digital payments infrastructure. However, reports last year said that the government was looking to make UPI payments chargeable. The immediate aftermath saw online backlash which forced FM Sitharaman to issue a categorical explanation that it was not the right time to make digital payments such as UPI chargeable.

At the centre of the debate is also the zero merchant discount rate (MDR) which puts the onus of bearing the cost of digital payments on infrastructure providers and banks. Raising the MDR could pass on the cost of the business to customers and lower their losses.

While the government debates on the contentious topic of MDR, payment fintechs have been seeking more support from the government to subsidise digital payments. 

Echoing the sentiment, Patel told Inc42, “Based on the current volume of payments, a higher support is needed for the industry to help further expand infrastructure for these growing transactions.”

The PCI has also sought about INR 8,000 Cr in MDR support for the next fiscal, including INR 6,000 Cr for UPI P2M transactions and another INR 2,000 Cr for Rupay debit card transactions.

Meanwhile, UPI continues to see rapid adoption and has been reporting record numbers. In 2022, UPI processed a record 7,404.45 Cr transactions, up 1.91X year-on-year (YoY), while the transaction volume stood at INR 125.95 Lakh Cr, up 1.75X.

Specifying the absolute quantum of UPI’s impact, Union Minister Ashwini Vaishnaw recently said that UPI transactions were worth 55% of India’s gross domestic product (GDP).