UPI Merchant Re-KYC Deadline Nears as Shopkeepers Risk Losing Digital Payment Access
Payment aggregators seek RBI relief before September 15 deadline as thousands of small merchants struggle with stricter KYC requirements
Payment aggregators have urged the Reserve Bank of India (RBI) to extend the September 15, 2026 deadline for completing the re-KYC process of merchants using digital payment services. The request comes as a significant number of merchants across both online and offline businesses are yet to complete the required verification process.
The pending re-KYC exercise has raised concerns among payment companies and small businesses because merchants who fail to complete the prescribed verification within the deadline could potentially lose access to UPI-based payment services. QR-code payments have become an important part of daily transactions for small traders, shopkeepers and informal businesses, particularly in smaller towns and villages.
Industry representatives believe that the September 15 deadline could create implementation challenges because a large number of merchants still need to complete the required verification.
The issue has become particularly important for businesses that depend heavily on digital payments. For many small shopkeepers, QR-code stands and soundboxes provided by payment companies have become an integral part of their daily operations.
Payment aggregators are therefore seeking additional time from the RBI so that the re-KYC exercise can be completed without creating unnecessary disruption for merchants or the wider digital payment ecosystem.
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The re-KYC process has created practical difficulties for payment aggregators that manage large networks of offline merchants.
A substantial portion of these merchants operates in small towns, rural areas and local markets. Many small traders do not have all the documents required to complete stricter KYC procedures, creating additional challenges for payment companies attempting to verify their accounts.
The situation is particularly complicated because the latest regulatory requirements include physical or in-person verification in certain cases.
Payment aggregators have also faced difficulties in deploying sufficient personnel to complete the verification process. The requirement for in-person KYC has increased pressure on companies because the RBI rules specify that such verification can only be conducted by employees of the payment aggregator itself rather than third-party agencies.
As a result, payment companies have had to increase their employee deployment for merchant verification. However, expanding field operations quickly enough to cover millions of merchants has created capacity constraints.
The industry has pointed to these practical difficulties while requesting additional time from the central bank. Payment aggregators argue that extending the deadline would allow them to complete pending verification in a more systematic manner while reducing the possibility of disruption for genuine merchants.
One payment aggregator founder and CEO said the RBI has historically understood practical implementation challenges and engaged with the industry when it identified risks of disruption. According to the industry view, the regulator could similarly consider the difficulties associated with completing merchant re-KYC within the current deadline.
The payment industry also considers small merchants important to India’s broader financial inclusion objectives.
QR-code payments have particularly expanded access to digital transactions because merchants can receive payments using relatively simple devices or printed QR codes. For customers, UPI payments provide a convenient alternative to cash, while merchants can receive payments directly into their linked accounts.
Any disruption to these facilities could therefore affect both sides of the transaction. Payment aggregators are seeking a solution that would allow regulatory compliance to continue without immediately cutting off merchants who are still in the process of completing their verification.
Industry representatives believe that additional time could help address documentation problems, field verification requirements and staffing shortages.
Why RBI’s re-KYC rules are creating implementation pressure
The current merchant KYC issue is linked to the Master Directions issued by the RBI in September 2025. Under the new regulatory framework, payment aggregators were divided into three categories: PA-Online, PA-Physical and PA-Cross Border.
The classification was part of the RBI’s broader regulatory approach towards payment aggregators and their activities. The requirements have also increased the compliance responsibilities of companies operating merchant payment networks.
For offline merchants, the physical verification requirement has become one of the most significant practical challenges. The RBI’s rules state that in-person KYC can be conducted only by employees of the payment aggregator. Third-party agencies cannot be used for this specific verification process.
This restriction has meant that payment companies need to maintain their own field teams and deploy employees to merchant locations where physical verification is required.
Staff shortages and logistical difficulties are particularly significant in the case of small merchants operating outside major urban centres. Reaching traders in remote areas, collecting the required documentation and completing the verification process can take considerably more time than a purely digital KYC exercise.
Many informal businesses also face documentation-related challenges. Small shopkeepers may not always have complete or updated documents readily available, which can delay the verification process even when they are genuine users of digital payment services.
Payment aggregators have consequently been working to increase their capacity and complete as much re-KYC as possible before the deadline. Industry estimates indicate that most payment aggregators are in a position to complete approximately 80 percent of the re-KYC process by September 15.
However, the remaining merchants could still represent a large absolute number because payment companies have extensive merchant networks. Even if the percentage of pending cases is relatively limited, the number of affected businesses could run into hundreds of thousands or more.
The concern is therefore not necessarily about the entire UPI ecosystem facing a major disruption. Instead, the immediate issue is whether individual merchants that fail to complete verification will continue to have access to payment services after the deadline.
The financial impact on the overall digital payment system is expected to remain limited because these small merchants account for a relatively small share of total payment value and volume. Their importance is greater from the perspective of merchant participation and financial inclusion than their contribution to the overall value of digital transactions.
This distinction is important because a large number of small merchants can be affected even when the overall financial value involved is comparatively small.
UPI has become a widely used payment method for everyday purchases, particularly among small retailers and customers who prefer cashless transactions. Merchants often display QR codes at counters, while soundboxes help them confirm incoming payments.
If a merchant’s payment facility is disabled because re-KYC remains incomplete, customers may have to rely on cash or other payment options.
The industry’s request for an extension is therefore focused on preventing avoidable disruption while ensuring that regulatory requirements are ultimately met.
KYC, or Know Your Customer, is a verification process through which banks and financial institutions establish the identity and address of customers or merchants.
Re-KYC refers to updating or reconfirming customer or merchant information when required under applicable regulatory rules. The objective is to ensure that financial institutions and payment companies maintain accurate and updated records.
While KYC requirements are essential for maintaining the integrity and security of the financial system, their implementation can be challenging when large numbers of small businesses are involved.
Payment aggregators are therefore hoping that the RBI will consider extending the September 15 deadline. Such an extension could give companies additional time to complete pending verification and allow merchants facing documentation or logistical problems to comply with the requirements.
At the same time, payment companies are continuing their efforts to complete as much re-KYC as possible before the existing deadline. Industry estimates suggest that around 80 percent of the process could be completed by September 15, meaning a substantial portion of merchants may successfully meet the requirement.
The central issue now remains whether the RBI will provide additional time for the remaining merchants. A deadline extension could reduce immediate pressure on payment aggregators and field teams while allowing genuine businesses to continue using digital payment facilities during the verification process.
For small shopkeepers, the issue is particularly significant because UPI payments have become a routine part of commerce. QR-code transactions allow even small establishments to accept digital payments without requiring traditional card-payment infrastructure.
The regulatory exercise is ultimately intended to strengthen the security and transparency of India’s rapidly expanding digital payment ecosystem. However, payment companies argue that implementation needs to account for the scale and diversity of India’s merchant base.
With September 15 approaching, payment aggregators are seeking clarity and additional time to complete the pending process. The outcome will determine how merchants who remain unverified are treated after the deadline and whether additional measures are introduced to minimise disruption.
While the overall digital payment ecosystem is not expected to face a significant financial impact because of the relatively small contribution of these merchants to total transaction value and volume, the issue remains important for thousands of small businesses that depend on UPI for everyday transactions.
The coming days will therefore be crucial for payment aggregators and merchants as they work to complete the remaining re-KYC requirements. An extension from the RBI could provide additional breathing room, while continued compliance efforts will remain necessary to ensure that merchants meet the regulatory requirements.
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