Fintech companies like PhonePe and Paytm have received a major boost after a fresh clarification from the Reserve Bank of India on UPI transactions.
The move is especially important for companies that work closely with small shopkeepers and local retailers across India.
Here’s what has changed — and why it matters.
No Payment Aggregator Needed for Small Merchants
The RBI has clarified that small merchants and unorganised retail businesses using UPI do not need a Payment Aggregator (PA).
These merchants are known as peer-to-peer merchants, or P2PMs.
This means UPI payments made to small shops, street vendors, and local businesses can continue without additional compliance requirements under the Payment Aggregator rules.
An email shared by the Self-Regulated PSO Association (SRPA) confirmed that P2PM transactions are now officially excluded from the Master Directions on Payment Aggregators (MD-PA).
Big Relief for PhonePe and Paytm
This clarification is a big relief for major fintech platforms like PhonePe and Paytm.
These companies have built large merchant networks, especially in small towns and local markets.
Many of these merchants use QR codes and soundboxes for daily transactions.
Earlier, there was confusion over whether these small merchants would need to follow strict Payment Aggregator rules, including heavy KYC and compliance requirements.
Now, that confusion has been cleared.
Who Will Handle Merchant Verification?
According to the RBI, P2PM transactions do not require a Payment Aggregator license.
Instead, the responsibility for due diligence and verification will lie with the acquiring bank, also called the Payee Payment Service Provider (PSP).
If any company is only providing technical support for such transactions, it will be treated as a Technology Service Provider (TSP), not a Payment Aggregator.
Why This Matters for UPI
In P2PM transactions, money moves directly from the customer’s bank account to the merchant’s bank account.
This model was introduced in 2019 by the National Payments Corporation of India.
It is different from traditional peer-to-merchant (P2M) models, where licensed payment aggregators collect funds and settle them later through escrow accounts.
By excluding P2PM from strict PA norms, the RBI has reduced compliance pressure and ensured smoother operations for small merchants and fintech platforms.
For millions of small retailers and daily UPI users, this means business continues as usual — with fewer regulatory hurdles.
