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RBI Proposes Comprehensive Draft Directions to Streamline Payment Aggregator Oversight


The Reserve Bank of India (‘RBI’) has taken significant steps toward regulating physical Payment Aggregators (‘PAs’) and online PAs in response to the evolving landscape of digital transactions. Recognising the increasing role of PAs in facilitating payments, the RBI via press release dated 16.04.2024[i] has issued two draft directions aimed at strengthening the regulatory framework surrounding their operations. The previous RBI Guidelines on Regulation of PAs and Payment Gateways issued on 17.03.2020, did not encompass offline PAs operating via physical points of sale. The absence of regulation in the offline PA space led to differential treatment of entities engaged in similar activities, prompting the issuance of the draft PA Directions.

Applicability of the Draft Circular

  • The draft circular applies to all PAs operating in both physical (PA-P) and virtual (PA-O) spaces.

  • Entry requirements into PA-P business interalia include submitting an authorization application in Form A by 31.03.2025. Failure to comply may lead to the bank holding the escrow account closure unless evidence of authorization application submission is provided.

Draft Direction One: Clarifications in respect of PAs – Online and physical point of sale[ii]

This draft direction focuses on refining the definition of PAs and introducing guidelines for their operations in both online and physical point of sale environments. The key highlights include:

1. Amended Definition: The definition of PAs has been revised to encompass entities facilitating the aggregation of payments made by customers to merchants, covering both online and physical point-of-sale modes. The distinction between Online PA – O and PA – P has been clarified.

2. Merchant Categorization: Merchants are categorized into small and medium entities based on their turnover, with specific due diligence requirements outlined for each category.

3. Escrow Account Regulations: Guidelines for the use of escrow accounts, particularly concerning delivery versus payment (‘DvP’) transactions, have been provided to ensure transparency and security.

4. KYC and Due Diligence: PAs are mandated to undertake Customer Due Diligence (‘CDD’) of merchants in accordance with specified guidelines, with ongoing monitoring to ensure compliance.

5. Compliance Requirements: Various compliance measures, including merchant monitoring, display of merchant and PA names, and adherence to wire transfer guidelines, have been outlined to bolster the integrity of PA operations.

Draft Direction Two: Requirement of authorization and net worth criterion[iii]

This draft direction emphasizes the authorization process for non-bank entities providing PA services and establishes net worth criteria to ensure financial stability. The key points include:

1. Authorization Process: Non-bank entities providing PA services must seek authorization from the RBI within 60 days via Form A, with compliance requirements outlined for existing and new entrants into the market.

2. Net Worth Criterion: Minimum net worth requirements are established for non-bank PA providers, with timelines provided for compliance and consequences for non-compliance.

3. Common Escrow Account: Non-bank PAs are proposed to utilize escrow accounts for PA-O and PA-P activities, possibly maintaining a common escrow account.


As the digital payment landscape continues to evolve, the RBI’s issuance of these draft directions marks a significant milestone in the regulation of PAs by extending oversight to previously unaddressed offline transactions. These proposed directions lay the groundwork for a more robust and transparent payment ecosystem, with provisions addressing key areas such as merchant categorization, KYC requirements, and authorization processes.

Stakeholders are urged to review the draft directions carefully and provide comments/ feedback on the draft directions either by or by post to the chief general manager-in-charge, Department of Payment and Settlement Systems, RBI before 31.05.2024.

End Notes

[i] Press Release No. 2024-2025/116, DATED 16.4.2024.

Authored by Priyavansh Kaushik, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.


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