The federal government has cut quotas for compensating fintech startups and banks that promote free UPI transactions, disappointing industry stakeholders who were demanding a significant increase from last year’s spending.
The budget for 2023-24 proposes an allocation of SEK 1,500 to facilitate digital payments.
This represents an increase of Rs 2,137 crore for 2022-23, up from a previous expenditure of Rs 20 crore after multiple stakeholders, including the Reserve Bank of India, warned that the zero MDR regime would have a negative impact. Much lower than the fixed allocation. Growth of the digital payments ecosystem.
MDR (Merchant Discount Rate) is a fee charged by banks and payment platforms to merchants for processing digital wallet, debit and credit card payments. Simply put, for each digital transaction, the merchant pays a certain percentage of the amount, which is split between the bank and the payment service provider.
There is currently no MDR for UPI transactions.
The Indian Payments Council had sought around 8,000 kroner for MDR support for the next financial year. A UPI person-to-merchant transaction requires 6,000 kroner, and a Lupay debit card transaction requires an additional 2,000 kroner.
“The government has already provided an increased incentive amount of Rs 260 crore under the promotional scheme of Rupay debit card and UPI for banks and fintech firms, but if the government is able to meet the demands of the payments industry, , would have been very supportive, said Vishwas Patel, Executive Director of Infibeam Avenues Limited and Chairman of the Indian Payments Council.
In January, the Federal Cabinet approved an incentive scheme of INR 260 billion for fiscal year 2024 for RuPay debit cards and UPI transactions. The payments industry awaits clarification on this incentive.
Bishwas also said all government-provided support money would be appropriated by banks, leaving nothing for fintech companies, including payment aggregators.
The industry also questioned the need to compensate merchants such as Amazon and Flipkart, arguing that only smaller merchants should receive subsidies.
“Continuing to promote the growth of digital payments is a great step by the government,” said Vishwas. Banks have appropriated the funds and to date they haven’t given him a cent to fintech companies. “
Mihir Gandhi, Payments Transformation Leader at PwC India, said the allocation to UPI transactions is a “way for stakeholders to continue investing in the technology infrastructure needed to keep up with rapidly increasing transaction volumes.” ” said.
“We had hoped that the zero MDR regime would be completely changed to allow () players to claim these transactions. We can give incentives, but we can’t cover the whole industry,” he said.
Another founder of the payment gateway, speaking on condition of anonymity, said the industry needs around 5 billion rupees in refunds for UPI, which is experiencing a surge in transaction volumes.
On average, from 2019 to 2022, UPI transactions grew by 121% in value and around 115% in volume. In 2022, UPI transactions accounted for 52% of financial digital transactions totaling SEK 8,840.
In 2019, the government decided not to apply MDR to UPI and RuPay payment modes in order to facilitate the acceptance of digital payments among merchants.
Various payment companies are contesting this because of the associated loss of revenue. To support the industry and cover losses, a portion of the allocated amount will be used for zero charge refunds for person-to-merchant transactions on UPI and RuPay debit cards.