The National Payments Corporation of India (NPCI) has announced an important initiative to promote digital payments among small merchants and shopkeepers across the country. According to an official circular issued on November 11, 2026, NPCI has introduced the ‘UPI Vyapaar Saksham Scheme’ for all UPI members. Under the scheme, 5% of the Merchant Discount Rate (MDR) earnings will be contributed to a dedicated fund, which will be used to onboard small merchants onto UPI and increase their transaction volumes.
How Will the Fund Be Created and What Is the Scheme’s Duration?
According to the provisions of the circular, every issuing bank, acquiring bank, payer payment service provider and UPI application provider participating in the UPI ecosystem will have to contribute 5% of their share of MDR earnings from eligible transactions to this dedicated fund.
However, transactions involving industry programmes and capital markets, including mutual funds, securities, brokers and dealers, have been excluded from the fund contribution.
The scheme will remain in operation for three years from the date of implementation of UPI MDR in the country. Its effectiveness will be reviewed every six months.
Which Merchants and Cities Will Benefit From the Scheme?
According to NPCI’s definition, all small merchants with an annual turnover of up to Rs 40 lakh in the preceding financial year will be eligible for the scheme.
Geographically, the initiative will primarily focus on merchants in Tier-3 to Tier-6 cities, northeastern states, Jammu and Kashmir, and Ladakh.
However, small merchants in Tier-1 and Tier-2 cities will also be eligible if they are covered under designated Central Government schemes such as PM SVANidhi and PM Vishwakarma.
Two Key Incentives: QR Codes and Soundboxes
NPCI has divided the overall fund into three separate components, with funds allocated to one component not being transferable to another.
Under the first component, 30% of the total fund has been earmarked for onboarding new small merchants. Acquiring banks will receive an incentive of Rs 300 for each physical QR code and Rs 750 for each soundbox device installed.
To qualify for these incentives, newly onboarded merchants must complete at least 25 eligible transactions in any two months of a quarter, with a minimum transaction value of Rs 5,000 per month.
Additional Incentives for Transaction Growth
The second component, aimed at promoting transaction growth, has been allocated 50% of the total fund.
Acquiring banks that maintain a quarter-on-quarter growth of at least 5% in transactions by eligible small merchants will receive an incentive of 0.03% on the total value of eligible transactions. For merchants in targeted areas, an additional 50% incentive over the base rate will be provided.
Additionally, 20% of the total fund has been allocated to the third component, which focuses on additional growth in targeted areas. Under this provision, an additional incentive of 0.20% will be provided over the base incentive of 0.03% on the incremental transaction value compared with the previous quarter.
Only Transactions Up to Rs 2,000 Eligible; Splitting Bills Prohibited
Under the scheme, only successful UPI transactions valued at Rs 2,000 or less, including P2PM transactions, will qualify as eligible transactions. Cancelled, refunded or reversed transactions will be excluded.
NPCI has explicitly warned that artificially splitting payments to keep individual transactions within the Rs 2,000 limit will not qualify for any benefits. Such practices will be detected through pattern analytics and may invite strict action.
Furthermore, merchants who have already received funding for devices under other institutional schemes, such as those offered by NABARD, will not be eligible to claim benefits twice for the same devices.
Annual Targets and Illustrative Incentive Calculations
Through this scheme, NPCI aims to facilitate the installation of 6 million to 10 million new physical QR codes and 500,000 to 1 million new soundboxes every year. The initiative is expected to generate annual transaction growth of 30% to 50% among existing small merchants.
According to an illustration provided in the circular, if a bank onboards 1,000 new merchants and installs 1,000 QR codes and 200 soundboxes, it will receive an incentive of Rs 4,50,000.
Similarly, for transactions worth Rs 50 crore, the bank could receive an incentive of Rs 1,80,000, including the base incentive and the bonus for targeted areas. An additional transaction growth of Rs 10 crore could fetch an incentive of up to Rs 2,00,000.
Technical Guidelines, Audits and Grievance Redressal Mechanism
To ensure transparency, acquiring banks will have to generate a ‘Unique Merchant Identifier’ (MIC) for every small merchant using their mobile number. They will also be required to report the precise geo-location of the shop, which must not be more than 1 km away from the actual establishment.
Any device that remains inactive for 90 days will be classified as inactive.
Fund contributions will be collected within 15 days of the end of each quarter. Banks will be required to submit audited claims within 30 days of the quarter’s closure, with an additional extension of 30 days permitted in special cases. NPCI will settle the claims within 30 days.
NPCI has also reserved the right to disqualify banks found submitting fraudulent or duplicate claims and recover the amounts directly from their RBI RTGS accounts.
Additionally, a two-tier grievance redressal mechanism has been established to resolve disputes, with a prescribed timeline of 30 working days at each level.