According to reports, the Union Cabinet approved extending Rs 1,500 crore incentive schemes for small digital transactions to minimize the cost of various stakeholders involved in the UPI ecosystem.

The program will last for a year, from April 1, 2024, to March 31, 2025 (post facto), and it covers transactions up to Rs 2,000 for small merchants.

Later, Union Minister Ashwini Vaishnaw stated that this program would also be extended for the upcoming year. This program offers 0.15 percent of every transaction as an incentive to small businesses that accept UPI payments.

According to the government incentive Scheme for the promotion of RuPay Debit Cards and low-value BHIM-UPI transactions Person to merchant (P2M) has played a major role in the expansion of national digital payments.

UPI was a major factor in the growth of the overall number of digital payment transactions, which increased from 4,597 crore in FY 2021-22 to 13,116 crore in FY 2023-24, with a CAGR of 46 percent from 8,839 crore in FY 2021-22 to 18,737 crore in FY 2023-24.

In a nation where consumers are increasingly using digital payments to convert chewing gum packets to gold, the incentive scheme's extension aims to increase low-value UPI transactions.

Customers may now make easy, fee-free digital payments at their preferred local businesses thanks to this change. They can keep using UPI without any additional hassles, whether they are purchasing groceries, tea, or other necessities for their daily lives.

How this will work
Zero MDR for all: The scheme ensures that no Merchant Discount Rate (MDR) is charged on UPI transactions, making digital payments cost-effective.

Encouraging digital transactions: Small merchants will receive a 0.15% incentive per transaction for UPI payments under Rs 2,000.

No benefits for large merchants: The incentive applies only to small merchants, ensuring support for local businesses.

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To speed up the reimbursement procedure, the government announced that banks would get 80 percent of the admitted claim amount for incentives each quarter, unconditionally. Only if banks maintain good service standards will the remaining 20 percent be paid. For example, banks will receive a 10% bonus if their technical decline rate is less than 0.75 percent and a 10 percent bonus if their system uptime is greater than 99.5 percent.