The budget, which earmarks Rs 1,441 crore for this purpose, marks a substantial 42% decrease from the previous year’s allocation, raising concerns in the digital payments ecosystem.
The incentive scheme, initially introduced in April 2022 for FY23, aimed to financially reward acquiring banks and fintechs for encouraging Point-of-Sale (PoS) and e-commerce transactions using RuPay debit cards and low-value BHIM-UPI transactions (P2M) up to Rs 2,000. The reduction in the budget allocation signals a potential shift in the government’s strategy and poses challenges for the growth of digital payments.
The scheme, originally set for one year, seems to have been extended, and its objective is to create a cost-effective value proposition for ecosystem stakeholders, increase merchant acceptance footprints, and accelerate the transition from cash payments to digital transactions.
The move to eliminate the merchant discount rate (MDR) on UPI and RuPay in 2020 aimed to encourage digital payments adoption. However, it has sparked debates among stakeholders, leading to discussions about regulating payment system-related charges. The Reserve Bank of India (RBI) floated a discussion paper in August 2022 on this matter, emphasizing the need for either passing the cost to merchants as MDR or to customers as a transaction fee.
While the government has clarified that there are no plans to levy charges for UPI services, the recent budget cut raises questions about the sustainability and growth of digital payment ecosystems.