Exclusive: Indian government plans Rs50 billion-incentive to promote RuPay, BHIM-UPI

Worried over mixed results in the growth of digital payments ecosystems, the Indian Finance Ministry plans to extend the incentives on low-value transactions through RuPay Debit Cards and BHIM-UPI, India’s digital payement system, for the third year while nearly doubling the budgetary outlay to attract more players.

The ministry plans to infuse Rs 50 billion during fiscal year 2023-24, up from Rs 26 billion in 2022-23, to compensate for the discontinued “merchant discount rate” (MDR) that was to be collected as transaction charge by the merchants and paid to the 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 case of industry programmes that involve use of RuPay cards in insurance, mutual funds, government, education, railways, agriculture, fuel, jewellery, hospitals, telecom, utility payments, and business/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 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 14.5 billion to offset the lost MDR, which an acquirer bank subsequently shares with the card-issuing bank (issuer bank) and the network operator.

In the case of BHIM-UPI, the acquirer bank shares 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 by 82 per cent and 105 per cent respectively, in fiscal 2022-23 over the previous year, while RuPay has been witnessing 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 RuPay debit card as well as to add UPI Lite, UPI LiteX, UPI Conversational Payments- Hello UPI in app and UPI 123Pay on 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 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 location etc.

Sources say the scheme has been approved by the Expenditure Finance Committee and is now awaiting the Cabinet’s approval before disbursement begins on a quarterly mode. However this time, it is being executed by the Department of Financial Services as “Promotion of Digital Payments” after it was transferred from the Ministry of Electronics and Information Technology in July 2023, they said.