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Government drops incentives for UPI transactions

In a surprising development, the central government has withdrawn multiple incentives for both, merchants and customers alike for making transactions using the Unified Payments Interface (UPI), a report from the Times of India said. According to the report, the government has completely dropped an initiative under which merchants get up to Rs 1,000 for accepting payments using UPI, while another scheme, providing customers cashback of up to Rs 500 has been replaced with one that provides rewards of up to Rs 150, that too only for users of the BHIM app.

Only in April this year the government announced that the cashback scheme, which began in 2017 and was supposed to end in March 2018– would be extended up to March 2019.  Under the scheme, a consumer who uses either the BHIM application which is run by the NPCI or a bank-led UPI application is eligible for cashback on unique UPI transactions. The minimum value of such transactions has to be ₹100 and users can get up to ₹25 for a maximum of 20 transactions per month. For repeat transactions, the government offers cash back up to ₹250 per month. So on paper, a user could stand to earn up to Rs 750 in cash backs every month.

However, the National Payments Corporation of India (NPCI) came out with a notification on July 3, modifying the scheme with effect from July 1, reports the TOI. The notification also restricted the rewards offered to users of BHIM app alone. Most industry players, including banks, were of the opinion that this could result in a slump in customer service as a major chunk of the user base was transacting with the incentives in mind.

It is worth noting that the news comes shortly after MobiKwik’s co-founder and CEO Bipin Preet Singh criticised BHIM and its cashback offers. Singh suggested that while the government funded cashback scheme was designed to benefit the entire UPI ecosystem, it actually only ends up benefiting the BHIM app and its user base.

In addition to the government cashbacks, payment service providers like Paytm, Google Tez and Flipkart backed PhonePe have been offering their own set of rewards to customers, driving UPI volumes. These three companies now account for nearly 80% of UPI transactions, while the share of BHIM has fallen to single digits. According to data released by the NCPI, there were 246.4 million UPI transactions in June, with Rs 40,834 crore being transacted up from Rs 33,289 crore in May. Of this, BHIM processed only 6.6% of all UPI transactions and accounted for 15.3% of the amount transacted in June. On the other hand, Paytm accounted for 38% of all UPI transactions, followed by Google Tez with 22% of UPI transactions in June 2018, according to a report by the Economic Times.

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NPCI to launch UPI 2.0 this week

The news comes at a time when media reports that the NPCI is set to launch UPI 2.0 this week. According to a report by the Times of India, the second version of the payment platform will have multiple features that will promote merchant payments. Amongst other features, UPI 2.0 is expected to increase the transaction limits Rs 2 lakh from Rs 1 lakh in the current version. Further, payments can also be made from an overdraft account as against only a cash account in UPI 2.0, reports add. Under the new version, merchants can block a certain amount in a customer’s account as security and debit it at a future date without additional authentication.

In another related development, a report by Yourstory claims that the NCPI is considering adding value and volume targets for ‘third-party app providers’ under its multiple bank approach model. According to the report, third-party apps connected to the Unified Payments Interface (UPI) through multiple PSP (Payment Service Providers) banks need to at least reach a volume of 5 million UPI transactions worth Rs 500 crore a month, and within 12 months of going live with the payment infrastructure.

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