Budget 2024 slashes incentives for RuPay debit cards, low-value UPI transactions

The government has allocated Rs 1,441 crore for the promotion of RuPay debit cards and low-value BHIM-UPI transactions (person-to-merchant) in the Interim Budget 2024-25, registering a drop of 42 percent from what it had earmarked last year.

The government had a outlay of Rs 2,485 crore (revised) in the previous budget for the incentive scheme, which was introduced in April 2022 for FY23. The duration of the scheme was one year initially and it now seems to have been extended.

The idea of the scheme was to financially incentivise acquiring banks, for promoting Point-of-Sale (PoS) and e-commerce transactions using RuPay debit cards and low-value BHIM-UPI transactions (P2M) up to Rs 2,000.

This is done by paying them a percentage of value of those transactions. "Various stakeholders in the digital payments systems and the RBI expressed concerns regarding potential adverse impact of the zero MDR regime on the growth of the digital payments ecosystem. Further, the NPCI requested, among other things, for incentivisation of BHIM-UPI and RuPay Debit Card transactions to create a cost-effective value proposition for ecosystem stakeholders, increase merchant acceptance footprints and faster migration from cash payments to digital payment," the note published by the ministry of electronics read during the launch of the scheme.

The scheme is also expected to promote UPI Lite and UPI 123PAY and enable further deepening of digital payments in the country.

When announced last year, the government had started out with an allocation of Rs 2,600 crore for FY23. The information on what was actually spent is not yet released. Extending the scheme, the government further earmarked Rs 2,485 crore (revised estimate) for FY24.

This has been dropped to Rs 1,441 crore in the budget announced on February 1.

In order to push adoption of digital payments, the government had done away with the merchant discount rate (MDR) on UPI and RuPay in 2020. MDR is a fee that banks and payment service providers charge merchants for facilitating digital transactions.

The government has also introduced a separate scheme - Promotion of Digital Payments - to incentivise banks and fintechs on their MDR loss by facilitating free UPI transactions. The full details of the fund allocation for FY25 is awaited.

The big debate

As the UPI ecosystem matures, the ‘no MDR on UPI’ policy has sparked a debate among stakeholders.

In August 2022, the RBI had floated a discussion paper on regulating various payment system-related charges, including MDR on UPI transactions. The regulator was of the opinion that the cost had to either be passed on to the merchant as MDR or to the customer as a transaction fee.

The heated debate, however, pushed the finance ministry to clarify its stance, stating that there was no plan to levy any charge for UPI services.

Transactions through the UPI platform crossed the 100-billion mark in the calendar year 2023 to close at 118 billion, as per data shared by the National Payments Corporation of India (NPCI). This marks a 60 percent growth over the 74 billion UPI transactions recorded in 2022.

The total value of UPI transactions in 2023 stood at around Rs 182 lakh crore, 44 percent higher than the Rs 126 lakh crore recorded in 2022.