Payment aggregators have approached the Reserve Bank of India (RBI) seeking an extension of the September 15 deadline for completing re-KYC of existing merchants, as firms struggle to clear a large verification backlog across online and offline businesses.
The request comes amid concerns that thousands of small and informal merchants could miss the deadline, potentially disrupting their ability to receive digital payments. Payment aggregators are facing challenges in completing documentation checks and physical verification required under the RBI's updated KYC framework.
Small merchants face biggest challenge
The issue is particularly significant for small businesses and merchants that accept UPI payments through QR codes and soundbox devices. Industry estimates suggest around 30-35% of small informal offline merchants may struggle to complete the required verification within the deadline.
Around one million small online business entities are also reportedly at risk of missing the verification window. Many of these businesses lack the formal documentation required under the stricter KYC and merchant due-diligence rules.
Payment aggregators such as Paytm, PhonePe and Google Pay work with millions of merchants across smaller towns and villages. The scale of the exercise, combined with the requirement for physical verification in certain cases, has created significant operational pressure.
Why re-KYC is proving difficult
The RBI's updated and consolidated Master Directions, issued in September 2025, categorised payment aggregators into three segments — PA-Online, PA-Physical and PA-Cross Border.
Under the framework, payment aggregators must conduct due diligence on merchants, including verification of their business, ownership, address and other relevant details. In specified cases, physical verification must be carried out by employees of the payment aggregator rather than third-party agencies.
This has forced several payment companies to expand their on-ground teams to reach merchants in cities, smaller towns and rural areas. The requirement has been especially challenging for informal businesses that may not have the necessary paperwork or familiarity with detailed KYC requirements.
Digital payment disruption concerns
The RBI has set September 15, 2026, as the deadline for payment aggregators to complete full re-KYC of existing merchants. Merchants who fail to complete the process could have their payment services paused.
Industry executives said most payment aggregators are likely to complete around 80% of the re-KYC exercise by the deadline. However, the remaining backlog could affect a large number of small merchants if the deadline is not extended.
Payment industry representatives have urged the RBI to take a pragmatic approach, pointing to the importance of small merchants in India's digital payments ecosystem and broader financial inclusion efforts.
The RBI has yet to announce whether the September 15 deadline will be extended.
