How Modi govt’s ₹1,500 crore UPI push is making digital payments bigger and bolder

PM Narendra Modi-led Centre has approved a ₹1,500 crore incentive scheme for FY25 to promote low-value BHIM-UPI (P2M) transactions and boost digital payments among small merchants. Launched on March 19, the initiative aims to keep the UPI ecosystem affordable and accessible for all users. But how will this scheme impact the common public?

India contributed 49% of all global real-time transactions in 2023 — reaffirming its position as a global leader in digital payment innovation, according to the ACI Worldwide Report 2024.

Effective from April 1, 2024, to March 31, 2025, the scheme offers a 0.15% incentive per transaction for payments below ₹2,000 made to small merchants, ensuring zero Merchant Discount Rate (MDR) on UPI transactions. This means the Centre gives a 0.15% cashback on UPI payments below ₹2,000 made to small merchants, while ensuring no extra fees for them.

The incentive is paid to the acquiring bank (merchant’s bank) and shared among key stakeholders, including the issuer bank (customer’s bank), payment service providers, and app providers. This initiative helps offset costs for digital payment service providers, as MDR—typically a percentage-based fee levied on merchants—is not applicable to RuPay Debit Card and BHIM-UPI transactions since January 2020.

To ensure efficient service delivery, 80% of the incentive will be disbursed quarterly without conditions, while the remaining 20% is contingent on maintaining technical decline below 0.75% and system uptime above 99.5%. The scheme aims to drive digital adoption at the grassroots level while keeping UPI payments accessible and affordable.

Under the scheme, the Centre aims to achieve ₹20,000 crore in BHIM-UPI transaction volume in FY 2024-25 while ensuring high system uptime and minimising technical declines.

The scheme aims to expand UPI services in tier 3 to 6 cities and remote areas using UPI 123PAY (for feature phones), UPI Lite, and UPI LiteX (for offline payments), strengthening digital payment infrastructure in rural and semi-urban regions.

UPI transactions have skyrocketed in recent years, with total transaction value jumping from ₹21.3 lakh crore in FY20 to ₹213.8 lakh crore by January 2025. Of this, P2M (Person to Merchant) transactions have grown steadily to ₹59.3 lakh crore, highlighting the rising adoption of digital payments by merchants.