From Disruption to Structure: RBI’s Payment Aggregator Overhaul

On 15 September 2025, the Reserve Bank of India (RBI) issued the Master Directions on Regulation of Payment Aggregators (PAs) a decisive move that has reshaped the regulatory architecture of India’s fast-moving fintech sector. What may appear as a routine rulebook in fact marks a watershed moment. For years, India’s payments landscape thrived on rapid experimentation, fuelled by agile startups and a light-touch regulatory regime. That era is now giving way to one of strict oversight, capital discipline, and consumer protection. The RBI’s new framework underscores a fundamental shift in priorities: from celebrating speed and innovation to enforcing stability and accountability.

A Unified and Stringent Framework

The Master Directions consolidate and supersede earlier circulars issued between 2020 and 2023, bringing online, offline, and cross-border aggregators under a single regulatory umbrella. The RBI has consciously designed a dual-tier system that separates banks from non-bank fintech entities. Banks, already under comprehensive RBI supervision, have been permitted to operate as payment aggregators without needing any additional licence. Non-bank entities, however, are required to apply for authorisation by 31 December 2025 failing which they must cease operations by 28 February 2026. This distinction draws a clear regulatory line between institutions viewed as systemically stable and those still considered operationally risky.

Alongside the new authorisation process, the directions introduce explicit financial thresholds. A non-bank payment aggregator must have a minimum net worth of ₹15 crore at the time of application, which must be raised to ₹25 crore within three years of approval. For large, established fintechs, this is manageable. But for startups that often operate on lean capital, it represents a formidable entry barrier. What was once an open gateway for small innovators has now become a gated field where only well-capitalised players can compete.

Escrow and Fund Management Rules

Perhaps the most significant operational change lies in the treatment of customer funds. The RBI now mandates that all non-bank aggregators maintain customer monies in escrow accounts with scheduled commercial banks. This measure ensures that payment intermediaries cannot earn interest on balances, cannot mix settlement and operational funds, and must ensure timely transfers to merchants. On paper, this is a strong consumer-protection measure safeguarding users against misuse or diversion of funds.

Yet, for fintech companies, the implications are heavy. Many had built business models relying on flexibility in managing settlement flows, cash-on-delivery options, and float income. The prohibition on interest earnings removes a revenue stream that had quietly supported smaller players. Additionally, because escrow accounts must be maintained with banks, non-bank PAs will depend on their larger counterparts not only for settlement but also for crucial competitive data. The result is an ecosystem where banks hold a structural advantage, while fintechs shoulder the regulatory burden.

The Innovation Paradox

The RBI’s new framework brings to life a striking paradox one where regulatory maturity and innovation pull in opposite directions. On one hand, the regime instils stability, discipline, and trust. Clear rules, standardised consumer safeguards, and strong risk controls are likely to enhance investor confidence and public faith in digital payments. Over the long term, this may cultivate an environment in which sustainable, high-quality innovation thrives on solid foundations rather than speculative disruption.

On the other hand, the heightened entry thresholds and compliance obligations could choke the very creativity that defined India’s fintech story. For a young startup, raising ₹15 crore merely to seek authorisation represents a major diversion of resources away from product development. Investors, too, may grow more cautious, preferring to fund compliance over experimentation. The result could be a narrowing of the innovation funnel  fewer bold experiments, fewer new entrants, and a concentration of innovation in the hands of large incumbents. Where innovation once bubbled up from small, nimble startups, it may now trickle down from a few deep-pocketed firms.

The Two-Tier Market in the Making

The combined effect of authorisation rules, capital requirements, and escrow restrictions is the emergence of a distinct two-tier market. At the top sit the banks and a handful of large fintechs with the capital and infrastructure to comply with the RBI’s conditions. Below them are smaller firms those that must now decide whether to partner with banks, merge with peers, or exit altogether. For merchants and consumers, this shift may not be immediately visible, but over time it will influence the structure of competition.

Retailers and corporate clients will naturally gravitate toward authorised PAs with a proven compliance track record and visible financial strength. The RBI licence itself becomes a symbol of credibility. This preference will deepen market concentration as established players handle greater transaction volumes while smaller competitors struggle to stay relevant. The result could be a payment ecosystem dominated by a small number of large institutions an outcome that enhances systemic safety but weakens competitive diversity.

India’s Distinct Approach

India’s regulatory stance also diverges sharply from that of other major jurisdictions. In the United Kingdom, the European Union, and Singapore, payment firms can choose between multiple methods for safeguarding customer funds, such as insurance coverage, bank guarantees, or trust arrangements. The Indian framework, by contrast, insists on a single route the escrow account model with a scheduled commercial bank. This approach reflects the RBI’s conservative regulatory philosophy: that absolute segregation of customer funds is the surest way to prevent misuse and build confidence.

However, this conservatism has a cost. By removing flexibility, the framework imposes operational and economic challenges that many international peers do not face. Startups operating in India’s payment space must manage compliance overheads and opportunity costs that are significantly higher than those faced abroad. For a sector that once prided itself on speed and adaptability, the rigidity of the escrow-based regime could slow its global competitiveness.

The Road Ahead: Regulated Maturity

The RBI’s master directions represent more than a set of compliance checklists; they mark the maturing of India’s fintech ecosystem. The regulator’s message is clear unbridled growth can no longer come at the expense of consumer protection or systemic safety. Payment aggregators are now expected to operate with the same prudence and governance standards as traditional financial institutions. In practical terms, this means fintech founders must embed compliance within the DNA of their organisations, raise deeper pools of capital, and forge strategic partnerships with banks to survive.

For consumers, the new framework may well bring tangible benefits. Stronger refund processes, unified complaint redressal systems, and stricter merchant accountability are likely to improve user experience and trust. Over time, standardisation could also enable more advanced forms of innovation, such as intelligent fraud-detection mechanisms, interoperable settlement systems, and cross-border payment capabilities built atop a stable regulatory base.

In the end, the RBI’s payment aggregator overhaul marks a defining moment a transition from the era of disruption to one of structured growth. India’s fintech revolution is not ending; it is simply evolving into a phase where resilience and responsibility matter as much as speed and ingenuity. The next wave of innovation will emerge not from the freedom to experiment recklessly, but from the discipline to innovate within a framework that prizes trust, transparency, and long-term sustainability.