Digital Payments Industry Set To Lose Rs 500-600 Crore As Government Withdraws Subsidy On Rupay Debit Cards

The digital payments sector is facing significant financial losses of around Rs 500-600 crore after the government decided to withdraw its subsidy support on RuPay debit cards.

This move comes as part of a broader reduction in the government’s subsidy allocation for digital payment systems in the 2025 fiscal year.

In a cabinet note issued on Wednesday, the government allocated Rs 1,500 crore for subsidies on UPI payments for small merchants in FY 2025.

This is a sharp reduction from the fintech industry’s expectations of a Rs 5,500 crore subsidy, and the Rs 3,681 crore allocation last year.

The fintech industry had anticipated a larger subsidy, which they believed would help sustain digital payments infrastructure amid the ongoing loss of revenue from zero-merchant discount rate (MDR) mandates on UPI and RuPay debit card transactions.

Impact On Digital Payments Ecosystem

The government has been subsidizing digital payments to make up for the revenue losses faced by banks and fintech companies due to the MDR mandate.

MDR refers to the fee that merchants pay to banks to support digital transactions. However, with no MDR or government subsidy, many industry insiders warn that such transactions may no longer be financially sustainable for banks.

A senior banker stated that many large banks have stopped issuing RuPay debit cards due to the lack of revenue, preferring to distribute MasterCard and Visa debit cards instead.

“Banks are not seeing any revenue from RuPay debit cards, which has led them to shift towards distributing cards from international networks,” the banker explained.

Decline In Rupay Debit Card Share

According to industry sources, the share of RuPay debit cards in the overall card payment value has dropped to less than 30% of the total monthly card payment transactions.

In January 2024, approximately 119 million debit card transactions were conducted for merchant payments, according to data from the Reserve Bank of India (RBI).

In response to the government’s decision, the fintech industry, represented by the Payments Council of India, is preparing to write to the Finance Ministry.

The letter will convey concerns about the sharp reduction in subsidies for digital payments and urge the government to either restore the MDR or increase the allocated subsidy for the sector.

“There is a consensus in the industry to reinstate MDR for debit cards at 0.25% of the transaction amount. Industry representatives will finalize this decision and communicate with the government,” said a senior executive from a fintech firm who wished to remain anonymous.

Another banker pointed out that the push for domestic payment networks to operate without MDR has backfired.

Large banks have almost ceased issuing RuPay debit cards, which represents a missed business opportunity for the National Payments Corporation of India (NPCI), the entity that operates RuPay.

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