The new requirements are expected to push up compliance costs, slow onboarding for smaller businesses, and raise barriers to entry in one of the world’s fastest-growing digital payments markets.
Payment aggregators in India may face a sharp rise in compliance and operational costs after the Reserve Bank of India (RBI) reportedly finalised guidelines making full know-your-customer (KYC) checks mandatory for their merchants.
The new Regulation of Payment Aggregators Directions, 2025 applies across online (PA-O), offline (PA-P) and cross-border (PA-CB) aggregators, according to reports from The Economic Times. Among the most significant changes is a requirement for payment aggregators to perform full KYC on merchants, including verification of identity documents, proof of business registration and, in some cases, physical checks of premises.
The central bank has framed the measures as part of its efforts to tighten oversight of the sector, which has grown rapidly in recent years and plays a key role in India’s digital payments ecosystem. Non-bank aggregators are also required to meet stricter capital rules, with a minimum net worth of $1.7 million (₹15 crore) at authorisation, rising to $2.8m (₹25) crore within three years.
Why costs will rise
The new obligations will reportedly increase operating expenses for aggregators in several ways. Merchant onboarding will become more resource-intensive, requiring additional documentation, background checks and due-diligence processes. Aggregators will also need to invest in upgraded technology to monitor transactions, classify merchants by risk, and report to regulators in line with new supervisory standard.
Industry analysts suggest this could slow merchant onboarding, particularly for small businesses, while pushing up costs that may ultimately be passed on through higher merchant discount rates or onboarding fees.
The regulations may consolidate the sector by raising the barrier to entry. Larger firms with established compliance frameworks and deeper capital reserves will be better positioned to absorb the added costs, while smaller or newer providers may struggle to comply.
Cross-border payment aggregators also face stricter reporting requirements, potentially complicating international merchant relationships at a time when Indian fintechs are expanding globally.
How India compares internationally
India is not alone in tightening KYC rules for payment intermediaries.
The European Union’s Payment Services Directive 2 (PSD2) requires payment service providers, including merchant acquirers, to apply customer due diligence and ongoing monitoring in line with anti-money laundering directives. In the US, the Financial Crimes Enforcement Network (FinCEN) applies Bank Secrecy Act obligations to payment processors handling cross-border or high-risk flows.
However, India’s decision to require full KYC across all merchant categories represents one of the most comprehensive frameworks globally, extending obligations even to small and micro-merchants who previously only faced limited verification requirements.
While the RBI’s rules are designed to enhance financial integrity and reduce fraud, concerns may arise around the idea the measures could slow down the onboarding of new merchants and add friction to India’s booming digital economy. The guidelines may also accelerate the adoption of regtech and automated verification tools as aggregators look to contain costs.
With the framework now reportedly finalised, the coming months will reveal whether India’s digital payments market – one of the largest and fastest-growing in the world – can balance stronger compliance with continued financial inclusion.
