Centre earmarks ₹2,600 crore as incentive for banks to promote digital payments

Banks will be provided this incentive money to promote digital payments such as RuPay cards and Unified Payments Interface. File
| Photo Credit: Reuters

The Union Cabinet approved an outlay of ₹2,600 crore to promote payments using RuPay cards and the Unified Payments Interface (UPI), Union Minister Bhupendra Yadav announced on Wednesday. Banks will be provided this incentive money to promote such digital payments, the Cabinet said in a press release.

The fund will be paid to banks in view of the lack of a Merchant Discount Rate (MDR) — a commission on digital transactions — for UPI and RuPay transactions. This regime has led to complaints from the Reserve Bank of India (RBI) and banks, the Cabinet said, which have been worried about the sustainability of building digital payments infrastructure in the absence of payments needed to scale and maintain them.

“The scheme will also promote UPI Lite and UPI 123PAY as economical and user-friendly digital payments solutions and enable further deepening of digital payments in the country,” the Cabinet said, referring to payment systems recently introduced by the National Payments Corporation of India to reduce the load on banking networks for small transactions, and to allow payments over older feature phones, respectively.

As a result of a previous incentive scheme for digital payments in the last financial year, the Cabinet said, “total digital payments transactions have registered a year-on-year growth of 59%, rising from [₹]5,554 crore in FY2020-21 to [₹]8,840 crore in FY2021-22.”

Union Finance Minister Nirmala Sitharaman had earlier committed continued financial support for digital payments systems, and the Cabinet said that this new scheme is in line with that commitment.