Consider the following statements regarding Merchant Discount Rate (MDR) and the BHIM-UPI incentive scheme:

1. The expenditure incurred by the digital payment industry while providing services to its customers/merchants is recovered through the charge of Merchant Discount Rate (MDR).

2. As per National Payments Corporation of India (NPCI), MDR was made zero for all UPI Person-to-Merchant (P2M) transactions.

3. Only UPI (P2M) transactions up to ₹2,000 for small merchants are covered under the Incentive Scheme for the promotion of low-value BHIM-UPI transactions (P2M).

Which of the statements given above is/are correct?

The correct answer is option 2.

In News

• The Government of India has launched an incentive scheme to promote low-value BHIM-UPI transactions (P2M) for amounts up to ₹2,000, aiming to increase digital payment adoption among small merchants.

Key Points

• Merchant Discount Rate (MDR) is a fee charged to merchants by banks and payment service providers for processing digital transactions.
  • This charge helps recover the costs incurred by the digital payment industry in providing these services.
    • Hence, Statement 1 is correct.
• NPCI has not made MDR zero for all UPI P2M transactions.
  • While MDR was removed for RuPay debit cards and BHIM-UPI transactions in January 2020, NPCI allows up to 0.30% MDR for UPI P2M transactions.
    • Hence, Statement 2 is incorrect.
• The incentive scheme applies only to UPI (P2M) transactions up to ₹2,000 for small merchants.
  • The government provides a 0.15% incentive per transaction to acquiring banks for these transactions.
  • Larger merchants do not receive incentives.
    • Hence, Statement 3 is correct.

Additional Information

• MDR Policy & UPI Incentives:
  • Small merchants (Up to ₹2,000 transaction): Zero MDR & 0.15% incentive to banks.
  • Large merchants (Up to ₹2,000 transaction): Zero MDR & No incentive.
  • Transactions above ₹2,000: Zero MDR for all merchants.
• Objective of the Incentive Scheme:
  • Promote indigenous BHIM-UPI.
  • Support digital transactions in Tier-3 to Tier-6 cities.
  • Encourage small merchants to accept UPI without financial burden.
  • Strengthen India’s financial inclusion & digital payment ecosystem.