The Reserve Bank of India (RBI) has introduced a new set of regulations for offline payments and merchant Know Your Customer (KYC) norms, aiming to strike a balance between convenience and security in the country’s rapidly expanding digital payments ecosystem. These new rules, which came into effect in 2025, are a response to the exponential growth of digital transactions and the associated risks of fraud, misuse of prepaid instruments, and money laundering. For both merchants and customers, understanding these changes is crucial to navigating the evolving landscape of digital finance in India. The new framework for offline payments, which are transactions conducted without internet connectivity, introduces a transaction limit of ₹200 and a total limit of ₹2,000 on a payment instrument at any point in time. Once the total limit is exhausted, it can only be replenished online and with Additional Factor of Authentication (AFA). This measure is designed to contain the risk of fraudulent transactions in an offline environment. The RBI has also mandated that all offline transactions be processed in near real-time, with customers receiving transaction alerts as soon as possible. This will ensure that users are promptly informed of any activity on their accounts, allowing them to take immediate action in case of any unauthorized transactions.
A significant part of the new regulations is the tightening of KYC norms for merchants, particularly small and medium-sized businesses. The RBI has introduced a more stringent due diligence process for onboarding new merchants, requiring them to provide more detailed information about their business and financial history. This is aimed at preventing the misuse of payment systems for illicit activities and ensuring that only legitimate businesses are part of the digital payments ecosystem. While this may initially seem like a cumbersome process for small merchants, it is a necessary step to build trust and confidence in the system. The RBI has also clarified the roles and responsibilities of payment aggregators and payment gateways in the merchant onboarding process, making them more accountable for the merchants they bring onto their platforms. This will help to create a more robust and secure payment infrastructure, benefiting both merchants and customers in the long run. The new KYC norms are also aligned with the government’s broader objective of promoting financial inclusion and bringing more small businesses into the formal economy. By ensuring that all merchants are properly verified, the RBI is creating a more level playing field for all businesses and fostering a culture of compliance.
The new rules on offline payments and merchant KYC are part of the RBI‘s ongoing efforts to create a more resilient and secure digital payments ecosystem in India. The central bank has been at the forefront of promoting innovation in financial services, and the success of the Unified Payments Interface (UPI) is a testament to its forward-looking approach. However, with innovation comes new challenges, and the RBI has been quick to address the risks associated with the rapid growth of digital payments. The new regulations are a clear indication that the RBI is committed to balancing the need for convenience with the imperative of security. For customers, these new rules mean safer and more transparent transactions. The transaction limits on offline payments will minimize their liability in case of fraud, while the real-time transaction alerts will keep them informed of all activity on their accounts. The stricter KYC norms for merchants will also give customers greater confidence that they are dealing with legitimate businesses. For merchants, the new rules may require some initial adjustments, but they will ultimately benefit from a more secure and trustworthy payment ecosystem. By complying with the new KYC norms, merchants can enhance their credibility and attract more customers. The new regulations will also help to reduce the incidence of chargebacks and disputes, which can be a significant cost for small businesses.
In conclusion, the RBI’s new rules for offline payments and merchant KYC are a welcome development for the Indian digital payments ecosystem. They represent a proactive and well-calibrated response to the evolving risks in the digital payments landscape. By striking the right balance between innovation and regulation, the RBI is ensuring that the digital payments revolution in India continues on a sustainable and secure path. As the country moves towards a less-cash society, the role of the RBI in creating a robust and resilient payment infrastructure will be more critical than ever. The new rules are a clear signal that the central bank is up to the task and is committed to making digital payments safe, secure, and accessible to all. For both merchants and customers, it is important to stay updated on these regulatory changes and ensure that they are compliant with the new norms. By doing so, they can not only protect themselves from financial fraud but also contribute to the overall health and stability of the digital payments ecosystem in India.