RBI Eyes Safer PAs: What Startups Must Fix

Why RBI Is Reviewing Payment Aggregator Compliance

The Reserve Bank of India (RBI) has turned its focus back on Payment Aggregators (PAs) — the backbone of India’s digital checkout ecosystem. These entities handle billions in daily transactions through merchants and fintechs, making them vital to UPI and card payments.

According to Rbi Payment Aggregator Guidelines, RBI’s latest compliance review comes amid rising concerns about data leaks, unverified merchants, and opaque fund flows. The central bank wants every licensed PA — from established players like Razorpay to newer startups — to meet stronger operational and audit standards.

The review is not a crackdown; it’s a safety upgrade. With over 185 entities awaiting PA licence renewal in 2025, RBI’s goal is clear: ensure that every platform managing customer funds is secure, traceable, and accountable.

Insight: For RBI, Payment Aggregators aren’t just fintechs — they’re mini financial institutions now.

New Rules That Every Payment Aggregator Must Follow

RBI’s updated framework strengthens both entry and renewal criteria for Payment Aggregators. The aim is to tighten financial discipline and improve merchant-level transparency.

Under Pa Licence Renewal Process, all PAs must now comply with these enhanced norms:

• Escrow clarity: Every PA must maintain a single escrow account per acquiring bank with full reconciliation daily.
• Merchant due diligence: Mandatory KYC, PAN, GST, and business verification before onboarding.
• Data localization: Storage of transaction data within India’s servers only.
• Fund settlement timeline: Merchant payouts within T+1 or T+2 days, even during holidays.
• Cyber audits: Annual system audit by CERT-In–empanelled firms.
• Capital adequacy: Minimum net worth raised to ₹25 crore for licence renewal.

In addition, RBI has asked PAs to strengthen merchant education — ensuring that sellers understand the risks of fraudulent transactions and refund chargebacks.

Tip: Compliance isn’t just a checklist — it’s a trust-building exercise for every merchant and customer.

How Startups Can Fix Common Compliance Gaps

While large payment players have compliance teams in place, smaller startups face challenges in meeting RBI’s expectations. Many are still adjusting to the operational rigor that comes with being a licensed PA.

Based on Fintech Compliance Framework, here’s where most startups fall short — and what they can do:

1. Incomplete merchant verification: Use automated KYC APIs and PAN-GST cross-validation before onboarding.
2. Weak fund flow visibility: Maintain end-to-end reconciliation with timestamped transaction logs.
3. Inconsistent data security: Adopt tokenization, encryption, and multi-factor admin authentication.
4. Audit delays: Schedule quarterly internal audits instead of waiting for annual reviews.
5. Unclear disclosures: Display fee, refund, and settlement timelines clearly on dashboards.

Startups can also leverage RBI’s regulatory sandbox to test new payment models safely. With APIs standardizing under NPCI’s framework, compliance doesn’t have to be a burden — it can be built into the product itself.

Insight: The best fintechs now treat RBI audits as a design feature — not a disruption.

What’s Next for India’s Fintech Ecosystem

As India’s fintech stack matures, Future Of Digital Payments India highlights that RBI’s scrutiny is about building resilience, not restriction. The next phase of PA regulation will likely include real-time licence monitoring, API-based fund tracking, and risk-based tiering for different aggregators.

Expected developments in 2025–26:

• Integration of escrow monitoring dashboards with RBI’s central system.
• Mandatory display of merchant trust scores in PA dashboards.
• Real-time fraud detection APIs shared between banks and PAs.
• Instant suspension mechanisms for high-risk merchants.

For startups, these aren’t roadblocks — they’re opportunities. Building transparency, security, and governance into payment systems will help attract both investors and users who value reliability.

Tip: Fintechs that build for compliance today will define trust in India’s digital payments tomorrow.

RBI’s new approach signals a long-term vision: digital growth anchored in financial safety. As PAs adapt, India’s fintech ecosystem will emerge stronger, more transparent, and globally credible.

Frequently Asked Questions

1. What are Payment Aggregators (PAs)?

They are entities that enable merchants to accept digital payments through multiple instruments like UPI, cards, and wallets under a single platform.

2. Why is RBI reviewing PA licences?

To ensure data security, proper fund flow management, and merchant transparency amid rising transaction volumes and fraud risks.

3. What are the new compliance requirements?

PAs must ensure escrow clarity, conduct KYC, store data locally, complete annual cyber audits, and maintain ₹25 crore net worth.

4. How can startups stay compliant?

By automating KYC, improving reconciliation, scheduling internal audits, and implementing secure data practices.

5. Will these rules affect small fintechs?

Yes, but positively — startups that comply early will gain faster RBI approvals and stronger investor confidence.