RBI’s draft KYC guidelines add burden and cost for payment aggregators

The Reserve Bank of India's new draft guidelines on Know Your Customer (KYC) for Payment Aggregators (PAs) may have a significant impact on micro and small-scale businesses and solopreneurs.

Earlier this week, the central bank published draft directions for PAs, under which the latter are required to conduct Contact Point Verification of small merchants. PAs shall also verify the bank account in which funds of such merchants are settled.

“For medium merchants, PAs shall carry out CPV. PAs shall also obtain and verify one Officially Valid Document (OVD) of the proprietor / beneficial owner / person holding attorney and verify one OVD of the business.” the regulations said.

Furthermore, all non-bank PAs are asked to register themselves with the Financial Intelligence Unit-India (FIU-IND). The RBI has set September 30, 2025 as the deadline for all stakeholders to follow the suit.

RBI defines small merchants as physical merchants (those undertaking only proximity / face-to-face transactions) with business turnover less than the threshold limit of Rs 5 lakh per annum and not registered under Goods and Services Tax (GST). Medium merchants are those with business turnover less than the threshold limit of Rs 40 lakh per annum and not registered under the GST. 

While it's certainly going to be challenging for big PAs, smaller ones in particular may have to find it harder to offset this additional cost. Moreover, the additional, and what appears to be a more stringent KYC framework, will slow down the process of onboarding new merchants, especially those in the above-mentioned categories.

At the same time, there are chances that some PAs may opt to completely skip such small and medium enterprises to avoid the headache of additional KYC procedures. Additionally, small and medium enterprises, such as solopreneurs on social media, may choose to request their customers to pay directly via UPI or personal numbers, adding further complexity.

Meanwhile, Payments Council of India Chairman and Infibeam Avenues MD Vishwas Patel has said that the KYC norms are not cost-effective and they will reach out to the central bank to convey the same. 

“...  The KYC norms are now clearly defined but some of our members are finding the KYC of the smaller merchants stringent and not cost effective, hence PCI will relay some comments to RBI on the draft notification in the coming week,” Patel said in a statement.

A founder, whose fintech firm recently got the PA license, said that the process of starting an online business may become more time consuming if the guidelines come into effect. Moreover, this will also affect small-scale entrepreneurs, especially those who just have a website for now or using co-working spaces as offices.

“In addition to slowing the speed of onboarding, it will further increase the cost of operations,” the founder explained to Entrackr.

Referring to another aspect of the guideline that disallows the permitted debit of settling to non-merchant accounts, the founder said, “This reduces the scope for innovation and makes it harder for even larger businesses like marketplaces. Someone like Swiggy, for instance, might want to use their PA to collect payments from customers and split the payment and settle into the account of each restaurant. This will not be possible now and the marketplace (like Swiggy) will need to develop this process on their own.”

“Fortunately, these are just draft guidelines for now. RBI always consults the industry. We’re hopeful our views will be incorporated into the final guidelines,” he added.

While the indicative deadline of September 2025 is just one sign that the RBI does have a sense of how laborious the process might be, the fact remains that it is a bureaucratic way to absolve itself of all responsibility when it comes to frauds etc. Smaller merchants will definitely find it tougher as Payment aggregators lose interest in making the effort at physical verification.