Will RBI’s new directive spell trouble for India’s booming creator economy, small businesses?

In mid-April, the Reserve Bank of India (RBI) released preliminary guidelines for Know Your Customer (KYC) regulations for payment aggregators (PAs). Under the proposed rules, PAs like RazorPay, Juspay, and Cashfree, which serve as intermediaries between customers, businesses, and financial institutions, enabling seamless online transactions through various payment methods on websites or apps, would be subject to far more rigorous KYC processes.

Put simply, PAs would be required to conduct physical KYC verification for all their current merchants and adopt a bank-grade KYC process for new merchant onboarding. Today, PAs only carry out a digital KYC, wherein they onboard new merchants via video calls, etc.

RBI’s proposed new rules sparked concern among fintech entrepreneurs. The RBI, for its part, wants to combat fraudulent activities by implementing additional checks and balances as India’s economy increasingly embraces digitisation. Fintechs, however, have come to see these compliance measures as burdensome.

It's important to note that these are draft guidelines, currently open for feedback from the public. The RBI will gather input from stakeholders and issue a final directive later. In all likelihood, founders of fintech companies having PAs will express their reservations to the RBI and both parties will reach a more agreeable solution. In its current form, however, PAs will face significantly increased costs per merchant for re-KYC processes, potentially amounting to crores of rupees in additional monthly operating expenses.