KYC compliance: Millions of UPI merchants may miss RBI's deadline
What's the story
The Indian payments industry is preparing for major disruptions as the Reserve Bank of India (RBI) nears its September 15 deadline for Know Your Customer (KYC) compliance. Industry insiders estimate that nearly 30-35% of small offline merchants using QR codes for Unified Payments Interface (UPI) transactions may not be able to meet the regulatory requirement in time.
Online impact
Online merchants also at risk
The KYC compliance issue isn't limited to offline merchants. An estimated one million small online businesses are also likely to miss the verification deadline.
The RBI's stringent compliance mandate applies to all categories of merchants, including those providing services online, offline, or across borders.
However, major payment platforms like Paytm, PhonePe, and Google Pay have not commented on their backlog or plans for re-KYC completion before the deadline.
Regulatory changes
Understanding the KYC backlog
The KYC backlog stems from the RBI's updated Master Directions issued in September 2025.
These guidelines formally categorize payment aggregators into three categories: PA-Online, PA-Physical, and PA-Cross Border.
The central bank has also set a September 15, 2026 deadline for payment aggregators to complete full re-KYC verification of existing merchants.
If they fail to do so by this date, their payments will be paused.
Compliance hurdles
Informal sector most affected
The RBI's KYC compliance rule particularly impacts informal merchants in both online and offline sectors.
Many of these individual-owned shops or businesses lack the necessary documentation as per RBI's requirements.
A senior executive with a payments firm told Moneycontrol, "While RBI's idea is to bring standardization in the KYC norms, most mom-and-pop stores or kirana shops do not have the kind of documents needed to complete the verification."
Staffing challenges
Capacity constraints for payment players
Many payment players are facing capacity constraints as per RBI's rules, which require in-person KYC to be done by the employees of the payment aggregator and not a third-party agency.
This has forced most players dealing with long-tail informal merchants to hire additional staff over the last year.
A payments firm's CEO and founder said, "This is a non-trivial matter and required companies like PhonePe, Paytm and Google Pay to hire thousands of such employees across the country."