The Union Cabinet of India has approved an outlay of ₹2,600 crore to promote digital payments using RuPay cards and the Unified Payments Interface (UPI). The fund will be provided to banks as an incentive to promote these digital payment methods, as stated by Union Minister Bhupendra Yadav.

 

The fund is intended to offset the lack of Merchant Discount Rate (MDR) - a commission on digital transactions - for UPI and RuPay transactions. The absence of MDR has led to complaints from the Reserve Bank of India and banks, who are concerned about the sustainability of building digital payments infrastructure without payments to scale and maintain them.

 

This scheme will also promote UPI Lite and UPI 123PAY as economical and user-friendly digital payment solutions and enables further deepening of digital payments in the country. This follows a previous incentive scheme for digital payments in the last financial year, which has resulted in a 59% year-on-year growth of digital payments transactions, rising from 5,554 crore in FY2020-21 to 8,840 crore in FY2021-22.

 

 

What is Merchant Discount Rate?

 

Merchant Discount Rate (MDR) is a commission charged by banks to merchants for accepting digital transactions through card or electronic payments. It is a fee that merchants pay to banks for every transaction made through electronic payment methods such as debit or credit card, UPI, or mobile wallets. This fee is a percentage of the total transaction value and is used to cover the cost of setting up and maintaining the infrastructure required for digital payments. MDR helps in bearing the cost of PoS terminals, network connectivity, and other expenses incurred by the banks for facilitating electronic transactions.

 

 

What is UPI?

 

Unified Payments Interface (UPI) is an electronic payment system in India that enables instant money transfer between bank accounts through a mobile device. UPI allows customers to link their bank accounts to a mobile application and use it to make transactions such as sending and receiving money, paying bills, and making online purchases. The service is based on the Immediate Payment Service (IMPS), which was launched by the National Payments Corporation of India (NPCI) in 2010. UPI is built on top of the Immediate Payment Service infrastructure and provides a platform to various bank account holders to transact seamlessly with each other. It works on the concept of Virtual Payment Address (VPA) which is a unique identifier that customers can create in the UPI application and share with others for transactions. Transactions can be done using the VPA instead of using the account number, IFSC code, and other details. UPI is a real-time 24/7 platform, which enables customers to make payments, receive money and check their account balance anytime, anywhere.

 

 

What is RuPay?