Key Highlights
- Government Incentive Reduction
- Allocation for promoting low-value BHIM-UPI transactions cut to â‚ą1,500 crore for FY25.
- Down from â‚ą3,268 crore allocated in FY24.
- Current Incentive Structure
- 0.15% incentive on transactions up to â‚ą2,000 for small merchants only.
- No incentives for large merchants or transactions exceeding â‚ą2,000.
- Industry Concerns
- Fintech players are unclear if the incentive structure applies uniformly to both offline and online merchants.
- High-ticket UPI peer-to-merchant (P2M) transactions — above ₹2,000 — are growing nearly twice as fast as peer-to-peer (P2P) transactions.
- Industry Response
- The Payments Council of India (PCI) calls the â‚ą1,500 crore incentive allocation inadequate.
- PCI warns that a lack of sustainable revenue models could force fintech firms to:
- Scale back operations.
- Slow down innovation.
- Reassess market presence.
- Alternative Proposals from Industry
- Introduction of a controlled Merchant Discount Rate (MDR) for large merchants with a turnover of over â‚ą40 lakh.
- Expansion of the incentive outlay in the next financial year to support growth and financial viability.
- RBI Data Insights
- UPI’s contribution to India’s digital payments ecosystem has surged from 34% in 2019 to 83% in 2024, highlighting its dominance.
The fintech industry is at a crossroads following the reduction of government incentives for low-value UPI transactions. Without a viable revenue model or support through expanded incentives or MDR for large merchants, fintech service providers risk financial instability and innovation slowdown. As UPI continues to play a pivotal role in India’s digital economy, it is crucial for policymakers to recalibrate support measures that sustain growth and encourage wider adoption across both small and large merchants.
