The Indian Union Cabinet has given the green signal to incentivise digital transactions of small amounts up to Rs 2,000 made using RuPay debit cards and BHIM UPI.
The government has earmarked an expense of Rs 1,300 crore for this scheme, which was designed in line with the Union budget announcements for FY 2021-22. The scheme is set to further boost India’s digital economy.
The incentive scheme for small payments made via RuPay cards and BHIM UPI is valid for a year.
Electronics and IT Minister Ashwini Vaishnaw said that the government will reimburse transaction charges levied on digital payments as part of the merchant discount rate (MDR).
“Under the scheme, the acquiring banks will be incentivised by the Government, by way of paying a percentage of the value of transactions (P2M) done through RuPay Debit cards and low-value BHIM-UPI modes of payments,” an official statement said.
What is MDR or Merchant Discount Rate?
Whenever customers make a digital payment for products or services they are not charged anything extra for the service. However, merchants have to pay a certain percentage of the transaction amount to banks for facilitating digital payments. This is called Merchant Discount Rate (MDR).
In its bid to promote digital transactions and move the country towards a cashless economy, the government in the past had directed banks to waive off the MDR on UPI payments including transactions made via RuPay cards.
Also read: MDR, PSP Fee, Interchange Fee, and Other Payments Charges – Explained
Commercial banks have long been asking for compensation for waiving off the MDR. It’s only now that the government has agreed to compensate banks to the tune of Rs 1,300 crore.
Incentivising digital payments up to Rs 2,000 using RuPay cards and BHIM UPI is expected to push the adoption of both platforms.
What are RuPay cards?
RuPay is a global digital payment network created by the National Payments Corporation of India, an umbrella organisation that powers all retail payments in the country.
The nine-year-old card network has already stripped Visa and Mastercard from their leadership positions in India.
RBI data on the availability of credit cards said RuPay had 970,000 credit cards in circulation till November 2020. There were around 628 million RuPay cards in circulation across all categories till February 2021, accounting for 60% of the market share in India.
It is to be noted that a majority of the cards issued by over 1,000 banks belong to the account holders of Pradhan Mantri Jan-Dhan Yojna, which pushed banks to issue RuPay cards.
The recently announced MDR incentive scheme will further benefit the indigenous RuPay card network.
What is BHIM?
Bharat Interface for Money, also known as BHIM is a digital payment app developed by NPCI to make quick digital payments on the UPI network.
Launched in 2016, BHIM allows customers and merchants to transfer money digitally from one bank to another. Merchants can also use the BHIM app to send customised payment requests.
While transactions made on the overall UPI network have been growing, digital payments made on the BHIM app have fallen from 24.32 million in March 2021 to 22.74 million in June.
With the latest incentive scheme on MDR, the government is trying to increase the adoption of BHIM UPI in the country.
