98. MASTER Direction — PA
On 15-Sep-2025, RBI published Master Direction on Regulation of Payment Aggregator (PA).
In every sense, this is the ‘Master’ Direction because going forward it will direct all types of PAs.
“One Master Direction to rule them (PAs) all and one Master Directions to bind them”
Long… long… journey of PA
PAs have existed since the early 2000s and in the last 25 years, various guidelines, circulars and directions were framed that PAs followed or didn’t bother to follow. Kind of No Asker and No Teller.
In 2020, RBI issued the PA/PG guidelines of 2020, that mandated the authorization of online PAs. In 2023, we got PA-Cross Border guidelines, and in 2024, Master Direction for BBPS.
Press enter or click to view image in full size
And now, Master Direction on Regulation of Payment Aggregator (PA), in short MD — RoPA :)
While all this was happening PAs were going through their own journey… Many erstwhile PAs pulled out the application, many were rejected and only in Jun-22 (year or so after submitting application), first set of PAs received in-principle authorization. Only in Dec-2022, the first set of PAs received final authorization. And the first PA-Cross Border came in July-2024.
This Master Direction will repeal many of the earlier guidelines but the authorizations/approvals, actions taken and acknowledgements issued under those circulars/directions will remain valid.
E.g. If PA-CB has received authorization under PA-CB guideline, it will continue to be authorized although the PA-CB guideline is repealed. And the PA-CB has to follow the new Master Directions.
Type of PAs covered:
Definition of PA: Entity that that collects from customers and settles to merchants:
Press enter or click to view image in full size
Authorization and Approval:
MD is making the it easier for an authorized PA to get into another type PA business with 30 days commencement notice to RBI via Pravaah portal
Press enter or click to view image in full size
Overall approval, commencement process for PAs and BBPOUs
General:
Press enter or click to view image in full size
Merchant KYC and Due Diligence
Much clarity about the KYC and Due diligence process; PA’s to start following the process from 1-Jan-2026. And merchants onboarded till then should be re-onboarded as per the new process by 15-Sep-2026.
Although MD of PA and MD — KYC are the same for all PAs, each PA has a different KYC process. Reason: Interpretation of guidelines, and risk taking nature.
So KYC is one of the challenging barriers for PAs who want to be highly disciplined and compliant, compared to the ones who like speed, operate in grey areas and take risks.
Press enter or click to view image in full size
Fully mature CKYC (when all merchants come onboard) will bring the uniformity, speed and high compliance that industry needs.
Escrow Set-up:
Each type of PAs are expected to move the funds via special accounts within permissible debits and credits.
Press enter or click to view image in full size
PAs to operate the Escrow / InCA / OCA accounts within permissible debits and credits
Press enter or click to view image in full size
Other points from Escrow
- Share list of merchants onboarded on escrow with the bank
- Do not mingle funds of OCA/InCA with domestic Escrow
- Escrow a/c can be shifted to another bank without impacting merchant’s settlement, under the advice of RBI
- Refunds to be processed via Escrow unless merchant, with customer’s consent’ refunds to customer through another channel. (Caution: Customer’s chargeback rights remain unaffected)
PA-CB Specific:
Firstly, thank you RBI for simplifying the names.
It was always confusing to use the PA-CB-Export and Import.
Export there goods/service goes outside India and money comes to India; and in Import, goods / service come to India and money goes abroad.
Life is simple with Outward / Inward transaction (i.e. money goes out or comes in)
Press enter or click to view image in full size
Interesting fund movement:
A PA-CB-Outward will have two legs:
- Domestic: PA-O will process payments (UPI, Card etc.) and receive funds in PA-O escrow, and then transfer funds to PA-CB-Outward’s InCA account
- International Leg: PA-CB-Outward will remit funds to merchant abroad
Interestingly, MD allows skipping of PA-O’s escrow and directly funds can be credited to InCA
Press enter or click to view image in full size
Note: I presume Flow 2 (Skip Flow) is possible only if PA and PA-CB are the same and the acquirer bank will agree to directly settle to the InCA. Anyway banks will tie this in a nice little bow by pushing PA to take their acquiring and InCA account.
PA behind PA
RBI explicitly allowed partnership between two PAs to facilitate payments.
PA behind PA can be done for domestic PA (both online and offline) and for PA-CB Outward.
Press enter or click to view image in full size
Today domestic PAs use another PA for payment modes that they do not have (as it takes time to do integration, agreement etc.) but wants to offer those payment modes to merchants.
Net-banking (until IBMB/Banking Connect goes live fully), wallets and EMIs are the popular payment modes where two PAs work with each other but even cards and UPI can be enabled under PA behind PA arrangement.
Although any PA can get into any other PA business (e.g. PA-O can become PA-CB). But few PA-Os may not want to be PA-CB and vice versa. In such cases, PA-O and PA-CB can work together where PA-CB will do merchant onboarding/DD/KYC and do settlement and PA-O will process the domestic leg of transaction (e.g. UPI, Card, NB etc.)
Interesting, PA-O and PA-CB-Outward can have two types of funds flows
Base Line Technology
Press enter or click to view image in full size
Along with the above recommendations, PAs to follow Master Direction on Cyber Resilience and DPSC, vendor outsourcing, MD-KYC.
And then there are a series of audits, testing and reporting — Big ones among them would be yearly PA System Audit and PCI-DSS.
Reports:
Press enter or click to view image in full size
Closing Remarks:
MD gave a lot of clarity to PAs, but still there are many questions and there are many things subject to interpretation. I am sure in the coming days/weeks all those will be plugged in and I will update this article accordingly.
