Fintech Firms Set To Approach FinMin Over Lower UPI Incentive

Fintech firms have raised concerns that the reduction of incentives for RuPay debit cards and low-value UPI transactions in the Union Budget will reduce costs covered by the incentive, thereby affecting their margins.

Profit margins are very miniscule for a payment processor, said Rahul Jain, CFO, NTT DATA Payments Services. The company plans to raise concerns with the Payments Council of India and in turn with the finance ministry. 

The recent budget saw a significant reduction in the allocation for incentives aimed at promoting RuPay debit cards and low-value UPI transactions. For the next fiscal year, Rs 437 crore has been allocated, lower than Rs 2,000 crore allocated last year. This reduction marks a continued decline since the incentive was first introduced, with the initial allocation being Rs 2,600 crore in January 2023, as UPI adoption in the country continues to grow.

“We did not expect this high reduction. Our cost is around 0.25% per transaction, and we were relying on the incentive. We, being a payments company, get a lower share, with only about 10% being covered by the incentive. Now that the overall allocation itself has reduced, much lesser percentage of the cost will be covered by the incentive,” said Jain.

Payment firms, app providers, and banks were being incentivised to compensate for the costs they incur in facilitating UPI transactions. This is due to the government's mandate to keep UPI transactions free of cost with the implementation of a zero Merchant Discount Rate (MDR).

Vishal Maru, Global Processing Head at Financial Software and Services(FSS), said that the fintech companies are already partnering with banks, either through a licensing model or a recurring payment model for transaction processing. However, now there may be some pressure on them to reduce costs. While the margins for firms acting as processing partners may shrink, the overall business volume is unlikely to decline.

Industry players also say that this hints at the government's shift in focus from promoting UPI transactions to Central Bank Digital Currency(CBDC) transactions. Maru said, “We have reached 17 billion UPI transactions in a month, and all the government's investment over the years is paying off. Now that it's been established, the government might be shifting the support to promote CBDC which has not picked up to a great level so far.”

Since the introduction of the incentive scheme in January 2023, UPI transactions in the country have consistently risen in India. Transactions hit an all-time high of 16.99 billion in January 2025.

Even as concerns exist due to the reduced fund allocation, the industry players remain hopeful that the allocation might be revised, as it was done earlier. The last budget initially allocated Rs 1,441 crore, which was later revised to Rs 2,000 crore.