Budget 2024: Fintechs pin hopes on continued subsidy for UPI transactions

Budget 2024: Fintechs pin hope for continued subsidy on UPI transactions

With UPI payments continuing to grow by leaps and bounds, financial sector players expect the government to continue incentivising them for facilitating the free transactions.
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.
To make up for the losses and reimburse banks and fintechs on their MDR loss, a Rs 1,500-crore scheme was announced in the 2021 Union Budget to promote digital transactions.
Interestingly, Rs 200 crore were set aside in 2022 for UPI players as a subsidy. This was later revised and bumped up to Rs 2,137 crore, amidst the growing pace of UPI adoption by the masses.
For 2023, the government, once again, earmarked Rs 1,500 crore (provisional), which is expected to be revised to a higher amount as the government inches closer to achieving its target of 18,000 crore in digital payments by March 2024.
Digital payments had touched 10,998 crore by November 2023, Union Minister of State for Finance Bhagwat Kisanrao Karad had said during a Lok Sabha session.
The final or revised allocation, if any, will be revealed in Budget 2024-25 on February 1, along with the fresh outlay for FY25.
“I am hopeful that the government will announce measures to increase capital availability for fintechs operating in underserved domains like rural credit, digital payments and lending,” said Nalin Negi, Chief Financial Officer and CEO, BharatPe.
Akash Sinha, CEO and founder of Cashfree payments, said he was hoping for a continued push for initiatives focusing on boosting adoption of digital payments in Tier 2 cities and beyond.
As the UPI ecosystem matures, however, 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 Union Ministry of Finance to clarify its stance, stating that there was no plan to levy any charges for UPI services.
Besides the larger outlay for promotion of digital payments, the government had also announced a separate Rs 2,600 crore scheme last January to incentivise fintech startups and banks for enabling small-value UPI and RuPay-BHIM transactions.
The scheme was aimed at incentivising digital payments enablers for facilitating payments under Rs 2,000.

UPI success
Transactions through the UPI platform crossed the 100-billion mark in calendar year 2023 to close at around 118 billion, as per data shared by the National Payments Corporation of India (NPCI).
This marks 60 percent growth over the 74 billion UPI transactions recorded in 2022.
The total value of UPI transactions in 2003 stood at around Rs 182 lakh crore, 44 percent higher than the Rs 126 lakh crore recorded in 2022.

A fintech fund, lower GST
Fintech players and associated entities are also anticipating support for the creation of a dedicated India Fintech Credit Fund (IFCF), to provide accessible financial assistance to fintech companies at affordable rates.
“IFCF is expected to support small and medium-sized fintechs by providing wholesale finance at a reasonable cost to digital lenders. This fund will help incentivise the horizontal movement of fintech lenders beyond Tier-4 cities, provide credit to women, include thin filers (people with little or no credit history), and expand formal finance,” said Mahesh Shukla, CEO and Founder, PayMe.
Jayesh Jain, Group CFO, Balancehero India, said companies with their own NBFCs should be given priority (for the fintech fund), and should receive more affordable debt.
Meanwhile, there is a call for the implementation of a standardised KYC framework across all financial services “to enhance efficiency and promote financial inclusion in a secure way”, said Cashfree Payments’ Sinha.