Monday , March 25 2019

Banks to Benefit Incentives for Encouraging Digital Modes of Payment

Indian Banks to get incentive of Rs 10 for each transaction. This is for their encouraging Digital Push efforts for accomplishing the objective of less-cash economy.


Government of India has made a proposal in which the Banks will be getting incentives of up to Rs 10 for each transaction. This step is taken  to boost the use of digital modes of payment for obtaining a less-cash economy that makes tax evasion easier to detect.

The proposal includes an incentive of 0.25% on the value of a transaction – capped at Rs 10 – made on the biometric-based payment system Adhaar pay and UPI platform BHIM.

The incentive will encourage banks to onboard merchants for the new payments ecosystem and build the requisite infrastructure.

This step can recover some revenue losses when customers use Aadhaar Pay or BHIM rather cash, debit or credit.

Funds will be made available from the India Inclusion Fund of Nabard and the corpus could be as high as Rs 1000 crore, according to an official.

The Cabinet Secretariat and ministry of electronics and IT and the department of financial services are holding Discussions on the proposal, involving the ministry of electronics and IT and the department of financial services.
“The committee of secretaries had said that if they (banks) don’t have incentives, they may not go and acquire merchants, so let them have incentives, and merchant will not bear cost and it may be borne from the financial inclusion fund,” the official told ET.

The government is also considering a merchant version of the BHIM app, which is functional for only person to person transactions.

A finance ministry official revealed that even though merchant discount rate (MDR) for banks has brought no loss as transaction through BHIM or Aadhaar Pay are network agnostic, the plan is intended to promote payments through these.

“The idea is that merchants should move on to these modules and customers should have a choice,” he added.

The Finance Ministry has proposed a budgetary allocation of Rs 3,000 crore to support it and speed up financial inclusion activities. Finance Minister Arun Jaitley also declared that 20 lakh Aadhaar Pay Point of Sale (PoS) machines will be deployed by banks in the current financial year.

Aadhaar Pay will be introduced in the country first with five banks, including Syndicate Bank, IndusInd Bank, and IDFC Bank. Bank of Baroda and Punjab National Bank are also in the process of launching it at the earliest.

“It’s a new paradigm, a quantum leap for banks. They are yet to harness the full potential of even credit and debit cards, so some initial issues are bound to come up while moving to a new system,” said another government official, explaining the delay behind the launch of Aadhaar Pay.

“The government therefore is trying to handhold the banks on technical issues, and is also looking at whether banks can be subsidized by the government along with some rationalization of charges,” added the official.


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