Concerns are mounting in the fintech sector following the government's decision to cut incentives for promoting low-value transactions on the Unified Payments Interface (UPI) from ₹3,268 crore in the previous fiscal year to ₹1,500 crore for 2024-25. This reduction has prompted calls for either the introduction of a merchant discount rate (MDR) on real-time payments or an increase in the incentive budget for the upcoming financial year.
The new scheme, approved by the Union Cabinet, aims to incentivize peer-to-merchant (P2M) transactions up to ₹2,000 with a 0.15% incentive per transaction for small merchants. However, industry leaders argue that this funding is insufficient to sustain the growth of digital payments, especially given the increasing costs associated with deployment and regulatory compliance.
The Payments Council of India has expressed that without a viable revenue model, many fintech companies may struggle to maintain their operations and innovate further in the digital payment space. They advocate for a controlled MDR for larger merchants while preserving zero MDR incentives for smaller ones to balance support for the digital payments ecosystem.