RBI KYC Deadline May Disrupt UPI Payments For Millions Of Small Merchants

India’s digital payments sector is preparing for possible disruptions as the Reserve Bank of India’s deadline for merchant Know Your Customer (KYC) compliance draws closer.

According to a report by Moneycontrol, payment industry executives have raised concerns that a significant number of small businesses may struggle to complete the required verification process before September 15.

Industry estimates suggest that around 30-35% of small offline merchants using QR codes for UPI transactions could miss the deadline. Nearly one million small online businesses may also face challenges in completing the verification process.

Small merchants face KYC compliance challenges

The RBI’s revised guidelines require payment aggregators to complete re-KYC verification for existing merchants across online, offline and cross-border categories. Merchants failing to complete the process within the deadline could have their payment acceptance facilities suspended.

The updated framework follows the RBI’s consolidated Master Directions issued in September 2025, which classified payment aggregators into three categories: online, physical and cross-border.

Industry executives said the compliance process is particularly challenging for small and informal businesses that often lack the required documentation. Many local retailers and small shop owners using QR-code stands may not be familiar with the detailed requirements.

According to a payments industry executive cited on the report, while RBI’s objective is to standardise KYC norms, many small businesses do not have the documents required for verification.

Payment firms increase efforts to complete verification

Major digital payment companies, including Paytm, PhonePe and Google Pay, have not disclosed details about their pending KYC backlog or plans to complete verification before the deadline.

Industry sources said around 85-90% of merchants using soundbox devices for UPI payments are expected to complete the process. Smaller QR-code merchants are more likely to face difficulties, although their contribution to overall payment volumes remains limited.

Payment companies are also facing operational challenges as RBI rules require in-person KYC verification to be conducted by their own employees instead of third-party agencies. This has forced several firms to expand their workforce over the past year.

Most payment aggregators expect to complete around 80% of merchant re-KYC by the deadline, limiting the broader impact on India’s digital payments ecosystem.