Budget 2025: Funds thin out for RuPay, low-value UPI transactions

Representative image

The government has slashed the incentives for promoting RuPay debit cards and low-value UPI transactions (upto Rs 2,000), allocating Rs 437 crore for the next fiscal year, compared to Rs 2000 crore it earmarked last year.

In order to push digital payments, the central government has made low value UPI and RuPay debit card payments at zero cost. However, transactions above Rs 2,000 continue to attract an MDR or merchant discount rate of above 1%.

The scheme was introduced in 2023 to incentivise banks and other payment system operators and app providers for processing such transactions as they incur a cost to do so. Stakeholders (including payer’s bank, beneficiary’s bank and UPI app provider, and NPCI) typically incur a cost of nearly 0.25% of transaction value for processing a UPI P2M (Peer-to-Merchant) transaction.

Due to zero MDR, the stakeholders are not able to recover the costs, and the same needs to be reimbursed to them through such incentives.

After an initial boost of Rs 2,484 crore, the government has been lowering the incentives for the same as the system grows. Last year, Rs 1,441 crore was allocated, which was later revised to Rs 2,000 crore. Given the revised number was higher, there is a possibility that the government may consider giving more funds high and above Rs 437 crore during the course.

With UPI becoming mainstream now, many have urged the government to relook into the zero MDR regime.

Major banks yet again push for MDR to large merchants on UPI, but Centre may not budge

In December 2024, the value of transactions through UPI stands at Rs 23.24 lakh crore as compared to December 2016, when it was Rs 707.93 crore and December 2020, when it was Rs 4.16 lakh crore.

As of December 2024, 16,730.01 million transactions were held through UPI, as compared to 2,234.16 million in December 2020. The payment mode is now live across 7 countries, including UAE, Singapore, Bhutan, Nepal, Sri Lanka, France, and Mauritius.