The Union Cabinet chaired by the Prime Minister Shri Narendra Modi today approved the ‘Incentive Scheme for promotion of low-value BHIM-UPI transactions Person to Merchant (P2M)’ for the financial year 2024-25 in the following manner:

i. The incentive scheme for promotion of low-value BHIM-UPI transactions (P2M) will be implemented at an estimated outlay of 1,500 crore, from 01.04.2024 to 31.03.2025.

ii. Only the UPI (P2M) transactions upto 2,000/- for Small Merchants are covered under the scheme.

Category	Small Merchant	Large Merchant
Up to Rs. 2k	Zero MDR / Incentive (@0.15%)	Zero MDR / No Incentive
Over Rs. 2k	Zero MDR / No Incentive	Zero MDR / No Incentive

iii. Incentive at the rate of 0.15% per transaction value will be provided for transactions upto Rs.2,000 pertaining to category of small merchants.

iv. For all the quarters of the scheme, 80% of the admitted claim amount by the acquiring banks will be disbursed without any conditions.

v. The reimbursement of the remaining 20% of the admitted claim amount for each quarter will be contingent upon fulfilment of the following conditions:

a) 10% of the admitted claim will be provided only when the technical decline of the acquiring bank will be less than 0.75%; and

b) The remaining 10% of the admitted claim will be provided only when the system uptime of the acquiring bank will be greater than 99.5%.

Benefits:

i. Convenient, secure, faster cash flow, and enhanced access to credit through digital footprints.

ii. Common citizens will benefit from seamless payment facilities with no additional charges.

iii. Enable small merchants to avail of UPI services at no additional cost. As small merchants are price-sensitive, incentives would encourage them to accept UPI payment.

iv. Supports the Government's vision of a less-cash economy through formalizing and accounting the transaction in digital form.

v.  Efficiency gain- 20% incentive is contingent upon banks maintaining high system uptime and low technical decline. This will ensure round-the-clock availability of payment services to citizens.

vi. Judicious balance of both the growth of UPI transactions and the minimum financial burden on the Government exchequer.

Objective:

• Promotion of indigenous BHIM-UPI platform. Achieving the target of 20,000 crore total transaction volume in FY 2024-25.
• Supporting the payment system participants in building a robust and secure digital payments infrastructure.
• Penetration of UPI in tier 3 to 6 cities, especially in rural & remote areas by promoting innovative products such as feature phone based (UPI 123PAY) & offline (UPI Lite/UPI LiteX) payment solutions.
• Maintain a high system uptime & minimize technical declines.

Background:

Promotion of digital payments is an integral part of the Government's strategy for financial inclusion and provide wide-ranging payment options to the common man. The expenditure incurred by the digital payment industry while providing services to its customers / merchant is recovered through the charge of Merchant Discount Rate (MDR).

As per RBI, MDR upto 0.90% of transaction value is applicable across all card networks. (for Debit cards). As per NPCI, MDR upto 0.30% of transaction value is applicable for UPI P2M transaction. Since January 2020, to promote digital transactions, MDR was made zero for RuPay Debit Cards and BHIM-UPI transactions through amendments in section 10A in the Payments and Settlement Systems Act, 2007 and section 269SU of the Income-tax Act, 1961.

In order to support the payment ecosystem participants in effective delivery of services, "Incentive scheme for promotion of RuPay Debit Cards and low-value BHIM-UPI transactions (P2M)" has been implemented with due approval by the Cabinet. Year-wise incentive payout by the Government (in Rs. crore) during the last three financial years:

Financial Year	Gol Payout	RuPay Debit Card	BHIM-UPI
FY2021-22	1,389	432	957
FY2022-23	2,210	408	1,802
FY2023-24	3,631	363	3,268

The incentive is paid by the Government to the Acquiring bank (Merchant's bank) and  thereafter shared among other stakeholders: Issuer Bank (Customer's Bank), Payment Service Provider Bank (facilitates onboarding of customer on UPI app / API integrations) and App Providers (TPAPs).

Incentive scheme for low-value UPI P2M transactions ties majority automatic payouts to banks with conditional additional disbursements. The Incentive Scheme for low-value BHIM-UPI P2M transactions provides zero MDR and a per-transaction incentive for small-merchant low-value UPI payments; acquiring banks receive 80% of admitted quarterly claims automatically, with the remaining 20% contingent on acquiring banks meeting specified technical decline and system uptime thresholds, and incentives are paid to acquirers to be shared with issuers, payment service providers and app providers.