As part of the Union Budget 2023-24, the Central Government has reduced the allocation for banks and fintech startups facilitating UPI transactions. The proposed allocation of Rs. 1500 crore departs from industry expectations. It falls short of the Payment Council of India’s request for comprehensive MDR support of Rs. 8,000 crores, with Rs. 6,000 crores specifically for UPI transactions.
Previously, the government had set aside only Rs. 200 crore to compensate various UPI players as a subsidy. This reduced allocation is expected to incentivize small-value transactions and small-scale merchants, driving further digitalization of the payment ecosystem across various industries in the country.
Digital Payments Subsidy: What Was the Budget Outlay for 2022-23?
There were high expectations that the government’s budgetary allocation towards financial support for digital payments would increase by more than two-fold to reach Rs. 2,137 crores in the current financial year. In comparison, the government had spent Rs. 1,044 crores as a subsidy for processing UPI transactions at zero charges in the previous financial year, FY2022.
Unfortunately, the actual allocation has remained stagnant at Rs. 1500 crore, much to the disappointment of industry stakeholders hoping for more significant support. This reduced allocation may impact the country’s growth and adoption of digital payments, particularly for small and medium enterprises (SMEs) that rely heavily on government subsidies.
Have you ever wondered where the funds for digital payment subsidies go?
Look no further! These funds are typically disbursed to fintech companies and banks that promote UPI transactions.
Interestingly, no charge (MDR) is levied from customers on UPI transactions. Therefore, this subsidy is meant to compensate the fintech startups and banks who abide by the restrictions on UPI transaction fees.
So next time you use UPI to make a payment, remember that these subsidies are supporting the growth of digital payments in India, making it more accessible and affordable for consumers and businesses alike.
Are you aware of the Merchant Discount Rate (MDR) story around UPI?
MDR is the fee payment platform, and banks charge businesses/merchants to process payments and settle them into their bank accounts. But did you know that the UPI payment method has no MDR levied? That’s right; this is where banks and payment startups are rewarded with the digital payment subsidy, as mentioned previously. This lack of MDR can also be considered the reason behind the exponential growth of UPI as a widely accepted payment method across India.
So next time you make a payment through UPI, remember that it is a convenient and fast way to pay, but it’s also helping to make digital payments more accessible and affordable for all.
Finance Ministry assures no UPI charges amidst RBI discussion on transaction fees.
Recent discussions by the Reserve Bank of India (RBI) on payment system charges led to concerns among users and service providers about potential charges for United Payments Interface (UPI) services. However, the Finance Ministry has confirmed that there are no plans to impose charges on UPI transactions, including UPI transaction charges, UPI payment charges, and charges for UPI transactions.
The government considers UPI a digital public good that provides immense convenience for the public and productivity gains for the economy. As such, the Finance Ministry has reiterated no plans to levy any charges on UPI services. Service providers’ concerns about cost recovery will be addressed through other means.
It is worth noting that the government has already implemented a zero-charge framework for UPI transactions since January 1, 2020, making UPI transactions free for both users and merchants. In addition, the government has provided financial support for the digital payment ecosystem to encourage further adoption of digital payments and promote payment platforms that are economical and user-friendly. With this latest assurance from the Finance Ministry, users can continue to enjoy the benefits of UPI transactions without any worries about transaction fees or charges.
What are the current volume and worth status of UPI?
UPI: From 4.46 million to 7,829.49 million – The Astounding Rise of Digital Payments in India
The emergence of a Unified Payments Interface (UPI) as India’s most popular and preferred payment mode in India has transformed the country’s digital payments landscape. UPI has paved the way for Person-to-Person (P2P) and Person-to-Merchant (P2M) transactions in India, accounting for 75% of digital payments.
The volume of UPI transactions has seen a massive surge, growing from 0.45 crore (4.5 million) in January 2017 to an astounding 804 crore (8.04 billion) in January 2023. The value of UPI transactions has also increased significantly, jumping from just Rs 1,700 crore to Rs 12.98 trillion during the same period.
This unprecedented growth in UPI transactions has revolutionized how Indians pay for goods and services. According to NPCI data, UPI transactions have grown from a mere 4.46 million in January 2017 to an astounding 7,829.49 million in December 2022, with a staggering value of Rs. 12,82,055 crores.
This trend is expected to continue as more and more people turn to digital payments due to their convenience, accessibility, and ease of use. UPI’s success has also paved the way for the proliferation of other digital payment platforms, driving the growth of India’s digital economy.