Central Government approves incentive scheme for RuPay and BHIM-UPI

Today, the Union Cabinet adopted an incentive programme to encourage the usage of RuPay debit cards and low-value BHIM-UPI transactions. The initiative, which will encourage the usage of RuPay debit cards and person-to-person UPI transactions up to Rs 2,000, was approved during a cabinet meeting chaired by Prime Minister Narendra Modi on Wednesday.

The government would incentivize acquiring banks under the scheme by paying a portion of the value of transactions conducted via the RuPay and BHIM-UPI systems. According to estimates, the scheme will cost roughly Rs 1,300 crore in the fiscal year 2021-2022.

Speaking about the initiative, Union Minister Ashwini Vaishnaw stated that the government of India will reimburse the MDR (Merchant Discount Rate) in the person-to-merchant portion of the transactions in order to further expand the RuPay and UPI payment systems. According to him, this incentive will be similar to an investment in digital payments. The government would invest Rs 1300 crore to encourage more individuals to use digital payments.

According to Ashwini Vaishnaw, the month of November saw a record number of digital transactions in the country, with over 423 crore transactions. The total amount of these trades was close to $100 billion at 7,56,000 crore.

According to a cabinet statement, this initiative would assist acquiring banks in developing a robust digital payment ecosystem and promoting RuPay Debit card and BHIM-UPI digital transactions across all sectors and segments of the population, as well as further strengthening digital payments in the country. It will also aid in making digital forms of payment available to unbanked and underprivileged communities who are excluded from the mainstream banking and financial systems.

“India today has one of the most efficient payments markets in the world,” the statement continued. These advances are the result of initiatives by the Indian government and innovation by various stakeholders in the digital payment ecosystem. The initiative will encourage more research, development, and innovation in the fintech field, as well as assist the government in further strengthening digital payments in various parts of the country.”

The Modi government’s move today to further promote RuPay and UPI will irritate global payment companies Visa and Mastercard, which have already protested about it. Visa protested to the US government last month that the Indian government’s formal and informal promotion of RuPay is harming the corporation in a vital market.

According to internal US government cables seen by Reuters, Visa executives objected to the Modi government’s promotion of RuPay during a meeting with US Trade Representative (USTR) Katherine Tai. “Visa is worried about India’s informal and formal rules, which appear to favour the business of the National Payments Corporation of India over other domestic and foreign electronic payment providers,” the document stated.

Previously, Mastercard expressed similar reservations about India’s local payment network. In 2018, the firm filed a complaint with the USTR, alleging that the Modi government was exploiting nationalism to promote its rival payment network.

Global payment giants like Visa and Mastercard have reason to be concerned about their Indian markets since, in only a few years, RuPay has risen to become India’s biggest debit card network. According to RBI data, the Indian payment network has managed to gain a 60 percent share of India’s card industry by 2020. In 2017, the share was only 15%, indicating a significant increase in a short period of time.