What are the KYC requirements of Payment Gateways in India?

 

What Are the KYC Requirements of Payment Gateways in India?

In India, Know Your Customer (KYC) compliance is a crucial regulatory requirement for businesses and individuals using payment gateways. The purpose of KYC is to verify the identity and address of merchants and ensure transparency and security in financial transactions. All licensed payment gateway providers must comply with the guidelines laid out by the Reserve Bank of India (RBI) and Prevention of Money Laundering Act (PMLA).

This article explores the KYC requirements in depth, why they matter, documents needed, the onboarding process, and specific rules for different entity types.

✅ Why KYC Is Mandatory for Payment Gateways

KYC norms help:

  • Prevent financial fraud, identity theft, and illegal fund transfers

  • Ensure compliance with AML (Anti-Money Laundering) guidelines

  • Monitor suspicious transactions under PMLA

  • Build trust between merchants, payment aggregators, and end customers

  • Allow banks and payment gateways to authenticate business legitimacy

According to RBI’s directions, payment aggregators must perform KYC checks before onboarding merchants.

🏢 Who Needs to Complete KYC?

All entities accepting digital payments via a payment gateway are required to complete KYC. These include:

  • Sole proprietorships

  • Partnership firms

  • Private Limited Companies

  • LLPs (Limited Liability Partnerships)

  • NGOs and Trusts

  • Individual sellers (freelancers or small merchants)

📄 KYC Documents Required (Entity-Wise Breakdown)

1. For Sole Proprietorships

  • PAN card of proprietor

  • Aadhaar card / Voter ID / Passport / Driving license

  • Business registration certificate (Shop Act or Udyam registration)

  • Bank account statement or canceled cheque with business name

  • GST registration (if applicable)

  • Recent utility bill or rent agreement (for address proof)

2. For Partnership Firms

  • PAN card of the partnership firm

  • Partnership deed

  • Address proof of the firm (utility bill, rent agreement)

  • GST registration certificate (if applicable)

  • KYC of all partners (PAN, Aadhaar, etc.)

  • Cancelled cheque or bank statement in firm's name

3. For Private Limited Companies / LLPs

  • Certificate of Incorporation (issued by MCA)

  • PAN card of the company

  • GST registration certificate

  • Memorandum & Articles of Association (MoA & AoA)

  • KYC of authorized signatories/directors

  • Board resolution authorizing signatory

  • Address proof of the company

  • Cancelled cheque or bank statement

4. For Individual Sellers / Freelancers

  • PAN card

  • Aadhaar card / Passport / Voter ID

  • Personal bank account details (cancelled cheque or bank passbook)

  • Business activity proof (optional: Udyam, invoices, website/social links)

🔁 Additional Documents (Based on Use Case)

Depending on the payment gateway and transaction type, the following may also be required:

  • Business website or app link

  • Social media handles (Facebook/Instagram Business page)

  • Proof of product/service delivery mechanism (courier partner, delivery records, etc.)

  • Invoices of recent transactions or service agreements

  • Refund and privacy policy (for online businesses)

🧾 RBI Guidelines for KYC & Onboarding

As per the RBI’s Payment Aggregator Guidelines (March 2020):

  • Full KYC must be completed before enabling live transactions

  • Digital onboarding (using DigiLocker, e-KYC, video KYC, etc.) is permitted

  • PGs must verify merchant’s control over website/app (via domain/email ownership or test integration)

  • A physical verification (site visit or video call) may be mandated for high-risk businesses

  • Payment gateways must maintain logs and audit trails for at least 5 years

Non-compliance can result in the merchant’s account being frozen or reported to FIU-IND.

📲 e-KYC vs Physical KYC

TypeDetailsCommonly Used By
e-KYCAadhaar-based digital verificationFreelancers, small vendors
Video KYCReal-time video call + document scanStartups, new-age fintech
Physical KYCDocument pickup + site verificationMedium-large businesses

🛡️ Risk Categories & Enhanced Due Diligence

Payment gateways classify merchants into:

  • Low Risk: Clothing sellers, bloggers, etc.

  • Medium Risk: Coaching institutes, online groceries

  • High Risk: Gaming, forex, cryptocurrency, adult content, financial services

High-risk categories may require:

  • Enhanced KYC

  • Additional declarations and compliance reports

  • Regular account reviews

🔐 Merchant KYC Renewal

Most payment gateways perform:

  • Periodic KYC updates every 1-2 years

  • Triggered reviews if suspicious activity is detected

  • Account suspension if updated documents are not submitted on time

💡 Top Indian Payment Gateways and Their KYC Norms

GatewayKYC Required Before Go-Live?Onboarding Timee-KYC Support
RazorpayYes1–3 daysYes
CashfreeYes1–3 daysYes
PayUYes2–5 daysYes
CCAvenueYes3–7 daysYes
InstamojoYes (after ₹10,000)1–2 daysYes
Paytm for BusinessYes1–3 daysYes

📝 Summary

KYC for payment gateways is a non-negotiable compliance step for any business accepting online payments in India. Proper documentation not only ensures faster onboarding but also builds long-term trust with financial institutions.

Key Takeaways:

  • KYC is mandatory under RBI and PMLA regulations

  • Document requirements vary by business type

  • Digital KYC is widely supported and faster

  • High-risk businesses must provide additional documentation

  • Delays or incomplete KYC can lead to account suspension

Whether you're a freelancer launching a digital store or a company expanding your ecommerce presence, understanding and complying with KYC norms is essential for smooth payment gateway integration.

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