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RBI Overhauls Rules for Payment Aggregators
The Reserve Bank of India's latest directives significantly change how payment aggregators (PAs) operate and comply with regulations. The core change requires PAs to use the Central KYC Records Registry (CKYCR) for onboarding merchants. This means PAs must now verify merchants themselves, rather than relying on banks. The goal is a more secure and traceable system to prevent businesses from being misclassified and to stop illicit activities like money laundering and illegal betting.
Stricter KYC and Higher Capital Demands
PAs must now build CKYCR into their merchant onboarding process. Physical documents will only be used if CKYCR data isn't available. This is part of using central data for better checks. The RBI also increased capital requirements. Non-bank PAs must show a minimum net worth of ₹15 crore when applying, rising to ₹25 crore within three years of getting approval. This higher capital, along with tougher compliance rules, is expected to create significant challenges, especially for smaller PAs. Analysts predict this will speed up market consolidation, benefiting PAs with strong finances and established compliance systems.
Cross-Border Payments Expand, With Limits
The new rules also allow Cross-Border Payment Aggregators (PA-CBs) to handle more transactions under the Liberalised Remittance Scheme (LRS). This covers payments for education, travel, and medical needs, as well as e-commerce, offering new growth opportunities. However, a key limit remains: PAs cannot directly check an individual's LRS limit. They must ask banks to confirm if the person is within the annual USD 250,000 limit. Relying on banks for this check could cause delays and add to complex compliance rules.
Challenges: Higher Costs and Risks
The tougher rules directly increase operating costs for PAs. Having to do thorough KYC, manage stricter escrow accounts, and potentially invest in new technology for transaction monitoring and reporting will squeeze profits. For smaller merchants, the easier KYC route still requires meeting certain turnover limits and may involve tougher checks than before. Using CKYCR, though good for standardizing data, could also create integration issues and make PAs dependent on the registry's accuracy. PAs also cannot facilitate person-to-person money transfers, limiting some services. The new cross-border services are promising but bring risks like dealing with different international rules and foreign exchange compliance. This is made harder because PAs must rely on banks to check LRS limits for customers. Merchants must ensure their PA has a valid RBI license and update KYC regularly, or their accounts could be suspended.
Future Outlook: A Divided Payments Sector
The RBI's update, set to be finalized around September 2025, will divide the payments industry. PAs that can handle higher compliance costs and integrate CKYCR and better verification methods will likely gain market share. Smaller players might struggle with the capital and operational demands, possibly leading to them being bought out or leaving the market. The market expects fewer, larger PAs, with fewer niche players. The deadlines for full merchant KYC are January 1, 2026, for new merchants and September 15, 2026, for existing ones. These are key dates to watch as the sector adjusts.