The Payment and Settlement Systems Act 2007, set up by the RBI, provides for the regulation and supervision of payment systems in India and designates the apex institution (RBI) as the authority for that purpose and all related matters. To exercise its powers and perform its functions and discharge its duties, the RBI is authorized under the Act to constitute a committee of its central board, which is known as the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS). The Act also provides the legal basis for ‘netting’ and ‘settlement finality’.
The PSS Act, 2007 received the assent of the President on 20th December 2007 and came into force with effect from 12th August 2008.
What is a Payment System under the PSS Act 2007?
The Section 2(1) (i) of the PSS Act 2007 defines that a payment system enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them, but does not include a stock exchange. It is further stated a ‘payment system’ includes the systems enabling credit card operations, debit card operations, smart card operations, money transfer operations or similar operations.
Except stock exchanges and clearing corporations set up under stock exchanges, all other systems carrying out either clearing or settlement or payment operations or all of them are regarded as payment systems. All entities operating such systems will be known as system providers. Also, all entities operating money transfer systems or card payment systems or similar systems fall within the purview of a system provider.
You may also watch:
What is a Settlement?
Settlement means the settlement of payment instructions received and these include settlement of securities, foreign exchange or derivatives or other transactions. Settlement can take place either on a net basis or on a gross basis. Both netting and gross settlement system are defined under the Act thereon.
What is a Payment Instruction and Payment Obligation?
Payment Instruction is defined as any instrument, authorization or order in any form, including by electronic means, to effect a payment by a person to a participant in a payment system or from one participant in such a system to another participant in that system.
The payment instruction can be communicated either manually i.e. through an instrument like a cheque draft, payment order etc. or through electronic means, so that a payment can be made by either a person to the participant in such a system or between two participants.
Payment obligation is defined as what is owed by one participant in a payment system to another such participant, which results from clearing or settlement or payment instructions relating to funds, securities or foreign exchange or derivatives or other transactions.
Are foreign entities allowed to operate a payment system in India?
The PSS Act 2007 does not prohibit foreign entities from operating a payment system in India and the Act does not discriminate or differentiate between foreign entities and domestic entities.
You may also watch:
Do foreign entities require to get a licence or approval or authorization from RBI before commencing operations?
All entities, whether domestic or foreign, need to obtain a licence. approval or authorization from the RBI before commencing payment system operations in the country. The PSS Act indicates that “No person can operate a payment system except under and in accordance with an authorisation issued by the Reserve Bank of India”.
