Major payment aggregators in India, including prominent players such as Paytm, PhonePe, and Google Pay, have formally approached the Reserve Bank of India (RBI) requesting an extension to the September 15 deadline for completing merchant re-KYC (Know Your Customer) procedures.
The plea comes as these companies encounter significant hurdles in verifying a vast backlog of small and informal businesses, especially those operating in India's numerous small towns and villages. Many of these merchants rely on QR codes and soundbox machines for digital transactions but often lack the comprehensive documentation required for the updated KYC norms.
Challenges in Verification Process
The RBI's stricter KYC requirements mandate physical verification, which has proven particularly challenging for payment aggregators. A senior executive from one of the aggregators noted that the majority of affected merchants operate informally, making traditional documentation difficult to obtain. Despite this, their inclusion remains crucial for the regulator's broader goals of expanding financial inclusion and promoting digital payments in underserved markets.
RBI's Mandate and Operational Strain
The current compliance drive stems from the RBI's updated and consolidated Master Directions issued in September 2025, which formally categorized payment aggregators into segments like PA-Online, PA-Physical, and PA-Cross Border. These KYC requirements are designed to help financial institutions identify customers, verify their addresses, and combat illegal activities such as fraud and money laundering.
Although payment companies and merchants were given ample time since the master directions were issued, the sheer scale of the re-KYC exercise has created immense operational pressure. A significant constraint is the RBI rule requiring in-person KYC to be conducted by employees of the payment aggregator, rather than third-party personnel. This has forced many players working with long-tail informal merchants to substantially increase their staffing over the past year.
Potential Disruption and Financial Inclusion
While most payment aggregators anticipate completing approximately 80% of the re-KYC exercise by the September 15 deadline, concerns persist that failure to verify the remaining merchants could lead to widespread disruption in digital payment acceptance. Such a scenario could disproportionately affect small businesses, potentially hindering the progress made in digitalizing transactions across the country.
The ongoing discussions with the RBI underscore the complex balance between regulatory compliance, financial security, and the imperative to maintain the accessibility and growth of India's rapidly expanding digital payments ecosystem.