Payment Aggregators Seek RBI Extension For Merchant Re-KYC Deadline

Payment aggregators have approached the Reserve Bank of India (RBI) seeking an extension of the September 15 deadline for completing merchant re-KYC, as companies struggle to clear a large verification backlog among online and offline businesses.

According to industry sources cited in a report by Moneycontrol, payment firms are facing challenges in completing physical verification and documentation checks for thousands of merchants, raising concerns about possible disruptions to digital payment services.

Payment firms face merchant verification challenges

The issue is particularly significant for small merchants using QR codes and soundbox devices for receiving UPI payments. Industry estimates suggest that around 30-35% of small informal offline merchants may not complete the required verification process within the deadline.

A large number of small online businesses are also at risk of missing the re-KYC window. Payment aggregators such as Paytm, PhonePe and Google Pay manage millions of merchant relationships across smaller towns and rural areas, where documentation requirements have become a major hurdle.

Payment industry executives said RBI has shown flexibility in addressing implementation challenges in the past and may consider a practical approach while balancing regulatory requirements with financial inclusion objectives.

KYC, or know your customer verification, is mandatory for financial institutions to confirm customer identities and prevent activities such as fraud and money laundering.

RBI rules create operational pressure

The re-KYC requirement follows the RBI’s updated Master Directions issued in September 2025, which classified payment aggregators into three categories: PA-Online, PA-Physical and PA-Cross Border.

Although businesses had time to comply with the new regulations, payment firms have faced difficulties reaching a large number of informal merchants and ensuring they understand the required procedures.

The RBI framework requires in-person verification to be carried out by employees of payment aggregators rather than third-party agencies. This has forced companies to expand their workforce and invest additional resources to complete merchant verification.

Industry officials said most large merchants and high-volume businesses are likely to complete the process on time. Smaller QR-based merchants, however, may face delays as they often lack the required documents.