The Reserve Bank of India has issued an important clarification on UPI transactions — and it’s big news for fintech companies.
This move is expected to bring relief to major players like PhonePe and Paytm, especially those with large merchant networks in the unorganised retail sector.
Here’s what has changed and why it matters.
Small Merchants Don’t Need Payment Aggregators
The RBI has clarified that small merchants using UPI do not require a Payment Aggregator (PA).
These small sellers are known as peer-to-peer merchants, or P2PMs.
They typically operate in the unorganised retail sector and handle small-value transactions.
Earlier, there was confusion in the industry about whether strict PA rules applied to these merchants.
Now, the RBI has clearly stated that P2PM transactions are outside the scope of the Master Directions on Payment Aggregators (MD-PA).
This means these merchants do not have to follow heavy compliance requirements such as strict KYC checks meant for payment aggregators.
What This Means for Fintech Companies
This clarification significantly reduces compliance pressure on fintech platforms.
Companies like PhonePe and Paytm have millions of small merchants using QR codes and Soundbox devices.
If PA norms were applied to all of them, it would have created operational and regulatory challenges.
Now, the responsibility for due diligence of P2PM merchants lies with the acquiring bank, also known as the Payee PSP, as per its internal policies.
If any intermediary only provides technical support in such transactions, it will be treated as a Technology Service Provider (TSP), not a Payment Aggregator.
Why P2PM Is Different
In P2PM transactions, money moves directly from the customer’s bank account to the merchant’s bank account.
There is no escrow account or periodic settlement handled by a payment aggregator.
This structure makes it simpler compared to traditional peer-to-merchant (P2M) models.
The P2PM category was introduced in 2019 by the National Payments Corporation of India, which manages the UPI system.
By officially separating P2PM transactions from PA rules, the RBI has provided clarity to the industry and reduced regulatory uncertainty.
For small merchants and fintech platforms alike, this decision ensures smoother operations while maintaining banking oversight where needed.
