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Current Affairs 2023

UPI, RuPay and MDR : New Incentive Program to Boost Digital Payments in India - UPSC Current Affairs

The Indian government has approved an outlay of ₹2,600 crore to promote the use of RuPay cards and the Unified Payments Interface (UPI) through a new incentive program for banks. The fund will be paid to banks to offset the lack of Merchant Discount Rate for UPI and RuPay transactions and encourage digital payments infrastructure in the country.

Jan 11, 2023

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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?

 

RuPay is an Indian domestic card payment network created by the National Payments Corporation of India (NPCI) to compete with international card payment networks like Visa and MasterCard. The RuPay card is accepted at all Automated Teller Machines (ATMs) and Point of Sale (PoS) terminals in India. It was launched in 2012 to fulfill the Reserve Bank of India's (RBI) vision to have a domestic, open-loop, and multilateral system of payments in India. Rupay is designed to reduce dependence on foreign card companies and the usage of international cards in India and aims to provide universal access to electronic payments. RuPay cards come in three types - RuPay debit cards, RuPay credit cards, and RuPay Kisan cards, which cater to the needs of customers and merchants. RuPay card also offers a range of services such as cashback and discounts, security features, and contactless payments. RuPay system is more secure than other card systems as it uses a secure encryption method and tokenization that makes it difficult to hack and have more features. The government of India also pushes RuPay card by providing benefits to customers using RuPay card.

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