On Monday, the Reserve Bank of India (RBI) issued new Payment Aggregation Directions which apply to:
· Online PAs – facilitating transactions where payment instruments (like cards) and acceptance devices (point of sale machines) are at different places.
· Cross-border PAs (PA-CB) – enabling international payments.
· Offline PAs – a new PA category facilitating transactions where the payment instrument and acceptance device are at the same place. Offline PAs were not regulated so far. However, existing offline PAs must now apply for RBI authorisation by 31 December 2025.
The new directions tighten norms around merchant KYC and fund settlements for all PA categories. Here are the key changes:
1. Stricter Merchant Onboarding Rules
Earlier Guidelines: PAs did not need to perform merchant KYC if they were settling funds into merchant bank accounts.
New Directions:
(a) Full merchant KYC, as per RBI KYC norms, is mandatory for all except small merchants (domestic turnover ≤ Rs. 40 lakh or export turnover ≤ Rs. 5 lakh).
Full KYC Process:
- PAs must follow RBI norms to KYC merchants.
- Preferred KYC mode must be CKYCR (Central KYC Registry) – a database that helps customers avoid repeating KYC with each financial institution.
- If CKYCR is not an option, PAs may adopt KYC processes such as Video KYC.
PAs may follow a 4-step ‘light KYC’ for small merchants
- Verify PAN.
- Obtain an Officially Valid Document (Aadhaar, driving licence, passport, etc.) of the proprietor/power of attorney holder.
- Verify at least one business KYC document (incorporation certificate, Memorandum of Association, Article of Association, etc.).
- Do contact point verification (CPV) – in-person check of business or address.
(b) RBI has also allowed PAs to use agents to do digital KYC (in-person KYC through digital means) or help merchants with Video KYC.
(c) Deadline
- Complete KYC of existing merchants by 15 September 2026.
- Conduct full KYC of new merchants from 1 January 2026.
2. Limitations on Fund Settlement
Earlier Guidelines: PAs could settle funds into any account that the merchant picked.
New Directions: These restrictions apply to settlement on the merchant's instructions:
- Settlement is only permitted for entities (sellers, delivery providers, etc) directly interfacing with customers for the underlying transaction.
- Only large merchants (domestic turnover > Rs. 40 lakh/export turnover > Rs. 5 lakh) can exercise this option.
- Small merchants don’t get this choice.
This means that split-settlement models (PAs settle commission to the marketplace and the rest to sellers/service providers) will still be lawful – but only for selected merchants and in selected cases.
3. Direct PA-Merchant Relationship Necessary
- PAs must perform KYC on every merchant and have a direct contract with them.
- Every merchant is required to have a unique merchant category code or ID.
4. Obligations on Acquiring Banks
Acquiring banks (who connect PAs to payment networks) now must:
- Frame policies for payments handled by non-bank PAs.
- Ensure PAs follow the acquiring bank's merchant onboarding norms.
- Have the right to inspect merchant KYC files at any time.
Acquiring banks typically secure rights to audit PAs and obligate them to follow their policies through their agreement with PAs. This direction codifies the practice to ensure that acquiring banks are closely involved in managing risks arising from non-bank PA operations.
5. New Transactions from Escrow Account
PAs pool all payments received from customers in their escrow accounts. New rules acknowledge payment chains with multiple PAs and allow funds to move between escrow accounts of two PAs.
6. PA-CB Clarifications
- Export and import collection accounts are renamed as inward collection accounts (InCA) and outward collection accounts (OCA), respectively.
- Pre-funding of InCA and OCA is prohibited, and inter-escrow transfers are also not allowed.
- Non-bank AD-II entities that enable cross-border transactions like exchanging INR for foreign currency will not be categorized as PA-CBs.
The Big Picture
The New Directions aim to:
- Harmonize rules across PA categories.
- Reduce fraud and money laundering.
Make merchant onboarding reliable and settlements traceable.
Author Credits: Fintech Team - Aparajita, Astha, Meghna, Samyukta
