The National Payments Corporation of India (NPCI) has introduced a new incentive scheme to expand UPI adoption among small merchants in smaller towns and underserved regions, even as the proposed Merchant Discount Rate (MDR) on select UPI transactions remains on hold.
Under the UPI Vyapaar Saksham Scheme, acquiring banks will receive financial incentives for deploying physical QR codes and soundboxes at eligible new small merchant locations. The initiative will also reward banks for increasing UPI transaction volumes among existing merchants.
Announced through a circular dated November 11, the scheme will operate for three years from the date the revised MDR framework comes into effect. Since NPCI has not yet announced the new implementation date for MDR, the scheme has not started.
Banks to Receive Incentives for QR Codes and Soundboxes
Under the scheme, acquiring banks will receive:
- ₹300 for every physical QR code deployed at an eligible new small merchant.
- ₹750 for every soundbox installed at an eligible new small merchant.
The incentives will be subject to transaction activity requirements. A merchant must record at least 25 eligible transactions in any two months of a quarter, with a minimum of ₹5,000 in eligible payments each month.
The scheme also provides additional incentives linked to the growth of UPI transactions at existing and newly onboarded merchants.
Focus on Smaller Towns and Underserved Regions
The programme defines a small merchant as a business with an annual turnover of up to ₹40 lakh in the previous financial year.
Its primary focus will be merchants operating in Tier III to Tier VI locations, northeastern states, and the Union Territories of Jammu and Kashmir and Ladakh.
Merchants in Tier I and Tier II cities will qualify only if they are covered under notified Central Government schemes such as PM SVANidhi and PM Vishwakarma.
Only UPI payments of up to ₹2,000 will be considered for calculating incentives. Reversed, refunded or cancelled transactions will not qualify, nor will payments deliberately split into smaller amounts to meet the transaction threshold.
How the Incentive Fund Will Be Distributed
The scheme will create a dedicated incentive pool through contributions from participants in the UPI ecosystem rather than government funding.
Each issuing bank, acquiring bank, payer payment service provider (PSP) and UPI app provider will contribute 5% of its respective MDR share to the pool. MDR earned from transaction categories outside the scheme will not be included.
The fund will be divided into three components:
1. New merchant onboarding – 30%
This portion will support the deployment of QR codes and soundboxes at new eligible merchant locations. Banks will receive the prescribed incentives after merchants meet the minimum transaction requirements.
2. Transaction growth – 50%
The largest share will reward banks for increasing eligible UPI transaction volumes among existing and newly onboarded small merchants. Banks must demonstrate at least 5% quarter-on-quarter growth in eligible transaction volumes.
Eligible banks will receive an incentive equivalent to 0.03% of the total value of qualifying transactions, or approximately ₹30 for every ₹1 lakh processed. Merchants in the targeted regions will attract an additional 50% incentive.
3. Growth in targeted regions – 20%
The remaining portion will reward incremental growth in eligible transaction value across
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