Understanding the PA Licence Mandate in India
RBI’s Payment Aggregator (PA) framework has redefined who can legally handle merchant payments in India. Under Rbi Payment Aggregator Guidelines, every fintech facilitating digital payments on behalf of merchants must either obtain a PA licence or operate under a licensed partner. The rule came into effect after RBI’s 2020 directive, aiming to separate regulated payment intermediaries from unregulated facilitators.
To secure a PA licence, an entity must be incorporated in India, maintain a minimum net worth of ₹25 crore, and adhere to strict governance and security norms. RBI also mandates escrow maintenance for all settlement funds, ensuring merchant payouts remain insulated from platform insolvency risks. These safeguards promote trust but raise operational costs significantly.
In 2025, with over 200 fintechs awaiting or holding provisional PA approvals, the decision between applying for one or continuing under partnership models is increasingly strategic. The calculus now extends beyond compliance — it defines long-term scalability, investor perception, and margin control.
Insight: As of mid-2025, RBI has approved 76 full PA licences, with another 140 applications pending review — signalling a maturing but tightly monitored ecosystem.The barrier to entry is high, but so is the potential payoff for fintechs that want full control over merchant relationships and settlement flows.
Aggregator Partnership: Low Entry, High Dependency
For early-stage fintechs, partnering with a licensed payment aggregator remains the fastest route to market. Such partnerships allow startups to offer digital payment capabilities — card, UPI, or net banking — without the heavy regulatory overhead of maintaining escrow accounts or compliance audits. The trade-off, however, is dependency and margin erosion under Payment Gateway Business Models.
Let’s break down the economics of partnership:
- Setup & Integration: Typically ₹2–3 lakh for full API integration and security certification.
- Transaction Fees: 0.3–0.8 % markup on MDR (merchant discount rate) per transaction.
- Escrow & Settlement: Managed by the licensed aggregator, often with a 1–2 day delay cycle.
- Compliance: Minimal direct burden, as the partner aggregator assumes audit responsibility.
While these partnerships reduce regulatory exposure, they cap scalability. Fintechs cannot directly onboard merchants, issue settlement instructions, or access raw transaction data. As they grow, this limits both customer experience control and monetization opportunities. Many platforms — especially in lending, SaaS, and neo-banking — are finding these constraints expensive in the long run.
Tip: A fintech processing over ₹100 crore annually can lose up to ₹50 lakh in yearly margins due to aggregator commissions and delayed settlements.In short, partnerships are perfect for speed — but not for control.
Licence Ownership: Control, Cost, and Compliance
Owning a Payment Aggregator licence offers autonomy — but comes at a price. Under RBI’s rules, PA licensees must maintain dedicated nodal and escrow accounts, conduct quarterly audits, and comply with PCI DSS, ISO 27001, and data localization requirements. While compliance is steep, it grants fintechs independence to manage merchant acquisition, flow design, and monetization directly under Fintech Compliance Cost Structure.
Typical cost breakdown for a PA licence in 2025:
- Capitalization: ₹25 crore net worth threshold (₹15 crore at application, ₹25 crore within three years).
- Technology Infrastructure: ₹50–70 lakh annually for secure API architecture, tokenization, and fraud monitoring.
- Compliance & Audit: ₹20–30 lakh yearly for third-party system and security audits.
- Escrow Management: ₹10–15 lakh annually for bank fees and daily settlement operations.
- Human Resources: Compliance, operations, and technology teams add ₹1–1.5 crore annually.
Despite the expense, the strategic benefits are substantial:
- Direct Merchant Relationships: The fintech controls onboarding, pricing, and settlement timelines.
- Revenue Retention: Full share of MDR, with flexibility to create sub-merchant pricing tiers.
- Investor Perception: A PA licence signals maturity and stability — critical for raising growth-stage capital.
- Regulatory Credibility: Licensed status enhances partnerships with banks, NBFCs, and enterprise clients.
Several 2025 fintechs — such as Cashfree, Razorpay, and Open — have transitioned from partner-led to licence-led models. Their margins improved by 15–20 %, even with higher compliance expenditure, largely due to reduced dependency on intermediary aggregators and control over merchant-level float.
Insight: RBI estimates that end-to-end licensed PAs settle over ₹3.5 lakh crore monthly, reflecting both trust and operational resilience.However, licence ownership requires continuous compliance vigilance. A single audit gap or late escrow reconciliation can lead to penalties or suspension — as seen in multiple RBI crackdowns during 2024–25.
The Strategic Trade-Off: What Makes Sense in 2025
For fintechs, the “PA vs partnership” decision boils down to three questions: volume, control, and compliance capacity. RBI’s post-2025 regulatory environment favors operational accountability — making partnerships less sustainable for scaled players. Under Merchant Onboarding Regulations, even partner fintechs must adhere to KYC, merchant screening, and grievance redressal norms — narrowing the compliance gap between models.
Let’s compare the two paths side by side:
| Factor | Aggregator Partnership | PA Licence Ownership |
| Setup Time | 1–2 months | 9–12 months (including RBI review) |
| Upfront Cost | ₹3–5 lakh | ₹25+ crore capitalization + ₹1 crore annual ops |
| Compliance Responsibility | Shared with licensed partner | Directly with RBI |
| Revenue Retention | 60–70 % of MDR | 100 % of MDR |
| Data Access & Control | Restricted; indirect analytics | Full; merchant-level insights |
| Scalability | Moderate | High; direct banking partnerships |
| Operational Risk | Low | High (due to audit & compliance exposure) |
For startups processing less than ₹50 crore per month, partnerships remain cost-efficient. But for mature platforms exceeding ₹100 crore, owning the PA licence offers better long-term economics. The inflection point typically arrives when lost MDR margins equal annual compliance costs.
In 2025, the RBI’s tightening oversight has also made indirect models riskier. Unlicensed fintechs operating through expired or proxy arrangements face increased scrutiny, with banks instructed to validate every merchant onboarding source. That’s driving consolidation — licensed aggregators scaling horizontally, and small fintechs focusing on niche or value-added payment layers.
Ultimately, the right model is contextual:
- Early Stage: Partner to validate use-cases and achieve compliance readiness.
- Growth Stage: Apply for provisional PA licence; build compliance and escrow pipelines in parallel.
- Enterprise Scale: Own the licence for margin control, data sovereignty, and investor confidence.
As one industry leader summarized, “A PA licence isn’t a badge — it’s a moat. The sooner fintechs treat compliance as a strategy, the faster they’ll scale sustainably.”
Frequently Asked Questions
1. What is a Payment Aggregator (PA) licence?
It’s an RBI authorisation that allows entities to collect and settle customer payments on behalf of merchants under regulated norms.
2. What are the eligibility criteria for a PA licence?
Minimum ₹25 crore net worth, Indian incorporation, escrow accounts, data security standards, and RBI-approved governance structures.
3. How do fintech partnerships with licensed aggregators work?
Unlicensed fintechs use licensed PAs’ APIs to process payments, while the PA manages settlements, compliance, and audits.
4. What’s the cost difference between owning and partnering?
Partnerships cost a few lakhs upfront but reduce margins; PA licences require ₹25+ crore capital but deliver full control and revenue retention.
5. Which model suits fintechs in 2025?
Partnerships suit small players, but high-volume fintechs benefit from licence ownership for scalability and compliance control.