UPI for Small Merchants: The P2PM Clarification Explained for Online Sellers

On 26 and 27 February 2026, Business Standard reported that RBI has clarified that UPI transactions for small merchants in the unorganised retail sector, called P2PM (peer-to-peer merchant), do not require a payment aggregator (PA) partner and fall outside the Master Directions on Payment Aggregators. It is relief for fintechs with QR and soundbox networks. For an online seller, it changes very little.

What did RBI actually say about P2PM?

The report is based on an email from the Self-Regulated PSO Association (SRPA) that Business Standard says it reviewed. The RBI wording quoted is: "It is advised that transactions as mentioned above (P2PM) do not require a PA and, as such, fall outside the purview of MD-PA".

Four points from the report:

• P2PM transactions do not require a payment aggregator partner.
• Funds move directly between the customer's and the merchant's bank accounts through UPI, with no pooling or holding by an intermediary.
• Due diligence of P2PM merchants rests with the acquiring bank, the payee PSP, under its internal policies.
• An intermediary giving technology support should be classed as a technology service provider (TSP) to the payee PSP.

The report says the NPCI introduced the P2PM category in 2019, and that RBI and NPCI did not respond to detailed queries. I could not open an RBI or NPCI circular on this, so the exact wording, scope and any conditions are not confirmed here.

What is P2PM, in plain words?

UPI has two broad ways a merchant gets paid. In the usual peer-to-merchant (P2M) model, a licensed payment aggregator handles the funds and settles them periodically through designated escrow accounts. In P2PM, the money goes straight from the customer's account to the merchant's account.

Think of the street vendor with a QR sticker, or a gig driver who takes small payments. Industry executives quoted in the report estimate that such merchants account for a majority of transaction volumes but under 20% of total transaction value. That is an estimate from unnamed industry sources, so treat it as such.

Why did the industry ask for this?

The report says payment aggregator norms issued in September 2025 required fintechs to complete prescribed due diligence on merchants onboarded until 31 December 2025, within one year of publication of the norms. Firms such as PhonePe and Paytm feared the cost of merchant KYC under that framework could push them to offboard low-value merchants. With P2PM outside the framework, bank account KYC is enough for these merchants, a source told the paper. Another industry voice cautioned that lighter KYC does not mean due diligence can be skipped.

Does this affect my online store or marketplace account?

Probably not directly, and that is my reading, not a confirmed statement. Reasons:

• The category described is small, unorganised retail merchants with QR codes and low ticket sizes, per the report.
• An online store takes payments through a payment gateway, which is a payment aggregator or works with one. On Shopify, for example, you connect a third-party provider from the Payments page, and Shopify charges a third-party transaction fee on those payments.
• Marketplaces such as Amazon and Flipkart collect the buyer's payment themselves and settle to you, so P2PM does not enter the picture.

Where you may care: if you also sell at pop-ups, exhibitions or from a shop counter with a UPI QR, your provider's rules for that QR may become lighter or stay the same. Ask the provider. For online set-up, see the Shopify in India guide.

What is the cost to an online seller of taking UPI?

Not covered by this clarification. The costs that matter for D2C are your gateway's fees, and, on Shopify, the extra transaction fee for third-party gateways of 2% on Basic, 1% on Grow, 0.6% on Advanced and 0.2% on Plus. I have no sourced MDR for UPI in India, so ask your gateway.

For example, on a ₹1,000 prepaid order on Shopify Basic, Shopify's third-party fee would be ₹20; the gateway's own charge comes on top, and I have no sourced figure for it. Compare that with COD, where the cost shows up as collection fees and RTO risk. The COD vs prepaid margin calculator and COD to prepaid conversion help.

Is there another RBI change that touches online payments?

Yes, but it is separate. RBI's Authentication Mechanisms for Digital Payment Transactions Directions, 2025, dated 25 September 2025, require at least two authentication factors for domestic digital payments, with at least one dynamic factor for transactions other than card-present ones. Payment system providers and participants must comply by 1 April 2026, unless a provision says otherwise. If you run checkout, your gateway handles this, but test your payment flow after any gateway update.

What should I ask my payment provider?

If you take UPI both online and at a counter or event stall, put these questions to your provider and keep the reply on file:

• Is my QR or UPI ID treated as P2PM, or as a merchant account through a payment aggregator?
• Who is the acquiring bank, and what KYC does it hold on my business?
• Does my settlement timing change, and are there any new charges or limits?
• Which entity do I contact for chargebacks and failed-payment disputes?

Answers differ by provider, and none of them are set by the news report.

What should I do now?

1. Do not change your online checkout because of this news.
2. If you take UPI at a physical counter, ask your provider whether the P2PM clarification changes your onboarding or KYC.
3. Keep bank KYC and business documents ready regardless; due diligence responsibility moves to the acquiring bank, it does not disappear.
4. Watch for an official RBI or NPCI circular, and update this page's facts when one is published.

FAQ

What is P2PM in UPI? P2PM stands for peer-to-peer merchant. It is a UPI category introduced by NPCI in 2019, per Business Standard, where small merchants get paid directly from the customer's bank account to theirs, with no aggregator holding funds in between.

Does P2PM need a payment aggregator? Per the RBI clarification reported on 27 February 2026, no. P2PM transactions fall outside the Master Directions on Payment Aggregators. The report is based on an industry email and I could not open an official circular, so ask your provider to confirm.

Who checks P2PM merchants now? According to the reported RBI wording, due diligence rests with the acquiring bank, also called the payee PSP, under its own policies. Firms that provide technology support are classed as technology service providers to that bank.

Does this change anything for Shopify or D2C stores? Not that I can confirm. An online checkout normally runs through a payment gateway, so this clarification about small unorganised retail merchants is unlikely to alter it. Check with your gateway if you accept UPI QR in person as well.

Is P2PM the same as UPI P2P? No. P2P is person-to-person, like sending money to a friend. P2PM is a merchant payment that uses a peer-to-peer style direct flow of funds. They sit under different rules and different use cases.

Will UPI become more expensive for sellers because of this? Nothing in the report says so. It says compliance pressure eases on fintechs. Any fee you pay depends on your gateway or bank agreement, which this clarification does not set.

Next step for your brand

Treat this as industry news, not a to-do. If your payments, COD and RTO are eating margin on marketplaces, Blooprint is a Bengaluru e-commerce agency and Amazon SPN verified partner that manages seller accounts, catalogues and ads on Amazon, Flipkart and quick commerce. See Amazon account management.