Government Approves ₹1,500 Crore Incentive Scheme to Boost Low-Value UPI Transactions

Spread the love

March 19, Mumbai: The Union Cabinet, headed by Prime Minister Narendra Modi, cleared a ₹1,500 crore incentive program to encourage low-value BHIM-UPI payments, more precisely small merchant payouts. This scheme, to be operated from April 1, 2024, to March 31, 2025, would facilitate the promotion of digital payment use among small businesses and advance the vision for a cashless economy put forth by the government.

Key Features of the Scheme:

Small Merchant Incentives: All payments up to ₹2,000 made to small merchants through BHIM-UPI will earn an incentive of 0.15% on every transaction value. For instance, for a transaction of ₹2,000, the acquiring bank would be given ₹3 as an incentive.
Zero Merchant Discount Rate (MDR): Small and large merchants will benefit from a zero MDR for transactions of up to ₹2,000. Only small merchants are entitled to the 0.15% transaction incentive. Transactions above ₹2,000 will remain with zero MDR but will not earn incentives.

Disbursement Mechanism:

The incentives will be passed on through acquiring banks, who will in turn pass them on to issuer banks, payment service providers, and app operators. The payment is made on a structured basis:

Unconditional Release: 80% of the approved claim amount by acquiring banks will be paid out unconditionally every quarter.
Performance-Based Release: The remaining 20% depends on the following performance indicators:
Technical Decline Rate: 10% of the sanctioned claim will be released if the acquiring bank has a technical decline rate of less than 0.75%.
System Uptime: Another 10% will be released if the acquiring bank provides system uptime of more than 99.5%.

Government’s View:

Prime Minister Narendra Modi emphasized the importance of the scheme, saying that it will promote digital payments and further ‘Ease of Living’.

Industry Response:

Although the initiative has been praised for facilitating digital transactions, some industry captains feel that the funds provided could be inadequate. Vishwas Patel, Joint MD of Infibeam Avenues and Chairman of the Payments Council of India was apprehensive, pointing out that the ₹1,500 crore allocation could not possibly meet the processing needs of transactions amounting to ₹246.8 lakh crore in 2024. He stressed that the ecosystem might struggle to scale and grow because of limited funds.

The incentive scheme approved by the government reiterates its focus on encouraging digital payments and enabling small merchants. By cutting down on transaction costs and giving incentives based on performance, the initiative will work towards a more inclusive digital economy. But tackling industry concerns about funding adequacy will be imperative to make the scheme a success and sustainable in the long run. Keep Reading Questiqa.biz for more business related news.