RBI Issues New Master Directions for Payment Aggregators, Rules Take Effect Immediately

The Reserve Bank of India on Monday issued the Regulation of Payment Aggregators Directions, 2025, which is a single comprehensive master framework for firms that route digital payments.

The rules, effective immediately, split payment aggregators (PAs) into three classes: PA-O for online, PA-P for proximity/physical and PA-CB for cross-border, and impose new governance, capital and operational requirements aimed at strengthening customer protection and reducing fraud.

Under the directions, banks may continue to run PA businesses without fresh authorisation, but non-bank aggregators must apply for RBI authorisation by December 31, 2025 or risk winding down operations by February 28, 2026.

The RBI has set minimum net-worth criteria for non-bank applicants: Rs 15 crore at the time of application and Rs 25 crore by the end of the third financial year after authorisation, thresholds that must be maintained on an ongoing basis. Firms that have received FDI will also be governed by FEMA norms.

Stronger Merchant Due Diligence

The directions tighten merchant onboarding and monitoring: PAs must conduct enhanced KYC and background checks on merchants (with scaled requirements for very small merchants), continuously monitor transactions for fraud or prohibited products and disclose full fees (MDR, setup and maintenance charges) in merchant contracts.

PAs are required to appoint a merchant-grievance officer and implement robust risk-management, data-security and dispute-resolution systems.

Escrow management rules aim to protect merchant receipts: funds collected must be held in escrow with scheduled banks (no co-mingling with corporate funds), settled to merchants within prescribed timelines (generally T+1) and subject to strict permitted-credit/debit rules; cross-border escrow funds carry separate restrictions and cannot earn interest in many cases. The directions also bar using PA escrow accounts for cash-on-delivery collections.

New Limits for Cross-Border Activity

Cross-border PAs (PA-CB) face specific constraints: inward and outward flows must be segregated, merchant onboarding rules vary for foreign merchants, and a per-transaction cap (set at Rs 25 lakh) applies to inward and outward payments handled by PA-CBs.

PA-CBs are prohibited from buying or selling foreign currency except through authorised dealers, and outward transactions cannot use small PPIs. Non-bank PAs must also register with the Financial Intelligence Unit, India (FIU-IND) and meet anti-money-laundering reporting norms.

The master directions consolidate draft proposals first circulated in April 2024 and reflect stakeholder feedback on merchant vetting, offline payments and cross-border risks. Regulators said the updated framework is designed to plug supervisory gaps in an industry that has rapidly expanded and diversified beyond e-commerce into physical retail and global flows.

Market players and fintech startups will need to shore up capital, upgrade compliance systems, segregate escrow operations and, if non-bank, file authorisation applications before the year-end deadline.