The National Payments Corporation of India (NPCI) has introduced a new incentive programme to strengthen UPI adoption among small merchants, with funding linked to the merchant discount rate (MDR) collected on UPI transactions. The initiative aims to expand physical payment infrastructure and encourage regular digital payment usage, particularly in smaller cities and underserved regions.
In a circular dated November 11, NPCI notified the UPI Vyapaar Saksham Scheme for all UPI members. The programme will support the deployment of physical QR codes and soundboxes, along with transaction-based incentives to encourage sustained usage.
The scheme will operate for 3 years from the date UPI MDR is implemented. However, NPCI has not specified the implementation date or the applicable MDR rates. The notification comes as the industry awaits the formal announcement of UPI MDR following the post-Diwali deadline.
Which merchants are eligible?
The scheme defines small merchants as businesses with an annual turnover of up to ₹40 lakh in the previous financial year.
Its primary focus will be on Tier 3 to Tier 6 centres, the North-Eastern states, Jammu & Kashmir and Ladakh. Merchants in Tier 1 and Tier 2 cities will qualify only if they are covered under notified central government programmes, including PM SVANidhi and PM Vishwakarma.
Only UPI transactions of ₹2,000 or less will qualify for incentives. NPCI has also clarified that artificial splitting of transactions to meet this limit will not be rewarded.
To finance the initiative, each issuing bank, acquiring bank, payer payment service provider (PSP) and UPI app provider will contribute 5% of its MDR share to the fund. MDR generated from non-eligible categories, including industry programmes and capital market transactions involving mutual funds, securities and brokers, will be excluded.
Three components of the incentive structure
The scheme is divided into 3 components, each with a separate allocation and incentive structure.
Component A: New merchant onboarding (30%)
- ₹300 for every physical QR code deployed.
- ₹750 for every soundbox deployed.
- Merchants must be newly onboarded and complete at least 25 eligible transactions in any 2 months of a quarter.
- A minimum monthly transaction value of ₹5,000 is required.
Component B: Transaction growth (50%)
- Incentive of 0.03% on the aggregate value of eligible transactions.
- Merchants in targeted geographies will receive an additional 50% incentive.
- Acquiring banks must achieve at least 5% quarter-on-quarter growth in eligible transaction volumes.
Component C: Incremental growth (20%)
- Incentive of 0.20% on the incremental value of eligible transactions in targeted geographies compared with the previous quarter.
- This incentive will be provided in addition to the Component B payout.
NPCI has specified that funds cannot be transferred between components. If claims exceed the available allocation, payments will be distributed on a pro-rata basis. Unused funds will be carried forward within the same component. All incentive amounts are exclusive of taxes.
Expected impact and settlement process
NPCI’s illustrative calculations show that a bank deploying 1,000 QR codes and 200 soundboxes for new merchants could earn ₹4.5 lakh under Component A. A bank processing ₹50 crore in eligible transactions during a quarter could receive ₹1.5 lakh under Component B. Additionally, ₹10 crore in incremental transaction value across targeted geographies could generate ₹2 lakh under Component C.
Through the initiative, NPCI expects the deployment of 6 million to 10 million new physical QR codes and 0.5 million to 1 million soundboxes annually. It also aims to achieve 30% to 50% annual growth in transaction volumes among existing small merchants.
Incentives will be calculated and settled quarterly, with NPCI expected to process payments within 30 days of receiving claims.
Acquiring banks will need certification from both internal and external auditors for their claims. Fraudulent claims could result in disqualification and incentive adjustments. Banks will also be prohibited from claiming incentives for devices already funded through other institutional mechanisms, including NABARD.
NPCI will review the scheme’s impact every 6 months to assess its effectiveness.
The programme’s launch and funding remain closely linked to the implementation of UPI MDR, which was expected to be introduced after Diwali but is yet to be formally notified. Both the scheme’s 3-year duration and its funding mechanism will depend on that implementation.
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