The Payment and Settlement Systems Act of 2007 provides regulation of payment systems in India and designates the Reserve Bank of India as the oversight authority. The Act establishes a legal framework for netting and settlement finality. It defines payment systems and designates the RBI to encourage alternative payment methods for security, efficiency, and ease of use. Electronic payment systems in India are growing and include NEFT, RTGS, IMPS, and alternate channels like ATMs and internet banking. The RBI oversees payment systems and can authorize operators, issue penalties for non-compliance, and prosecute criminal offenses under the Act.

1. PAYMENT SETTLEMENT
ACT 2007
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2. INTRODUCTION
• Payment and Settlement Systems Act, 2007 provides for the regulation and
supervision of payment systems in India and designates the Reserve Bank of India
(Reserve Bank) as the authority for that purpose and all related matters.
• The PSS Act, 2007 received the assent of the President on 20th December 2007
and it came into force with effect from 12th August 2008.
• The Act also provides the legal basis for “netting” and “settlement finality”.
According to a survey the ratio of e-payments to paper based transactions has
considerably increased between 2004 and 2008.

3. PAYMENT SYSTEM
PAYMENT SYSTEM
• It means a system that enables payment to be effected between a payer & a
beneficiary , involving clearing , payment or settlement service but does not
include a stock exchange .
• It includes the system which enables credit card operations, debit card operations
smart card operations , money transfer operations or similar operations ;
• The Reserve Bank of India is doing its best to encourage alternative methods of
payments which will bring security and efficiency to the payments system and
make the whole process easier for banks.

4. IMPORTANCE OF PAYMENT & SETTLEMENT
SYSTEM
• Payment and settlement systems are an important part of the economic and
financial infrastructure, as by ensuring the safe, effective and timely settlement
of financial transactions they make a key contribution to the smooth functioning
of financial markets, and thereby to general economic stability and efficiency.
• In the wider sense, payment and settlement systems consist of a set of
instruments, procedures, rules and technological support for transmitting
information and settling cash or financial instruments between their participants.
• In a narrower sense, payment and settlement systems entail a formal
arrangement based on a private contract or legislation, with multiple
membership, standardised arrangements and common rules, for the
transmission, clearing, netting and/or settlement of monetary obligations and
financial instruments between their participant

5. ELECTRONIC PAYMENT & SETTLEMENT SYSTEMS
IN INDIA
• The Indian banking sector has been growing successfully, innovating and trying to adopt
and implement electronic payments to enhance the banking system. Though the Indian
payment systems have always been dominated by paper-based transactions, e-payments
are not far behind. Ever since the introduction of e-payments in India, the banking sector
has witnessed growth like never before.
• The ratio of e-payments to paper based transactions has considerably increased between
2004 and 2008
• The RBI has played a pivotal role in facilitating e-payments by making it compulsory for
banks to route high value transactions through Real Time Gross Settlement (RTGS) and
also by introducing NEFT (National Electronic Funds Transfer)

6. ELECTRONIC PAYMENT SYSTEM
• Simpler
• Safer
• Faster
• Cost Effective
• Enhanced Reach
• Eco- Friendly

7. WHY EPS
CASH / PAPER ELECTRONIC
• Physical Movement of cash / paper instruments • Electronic Movement
• Operational Cost is very high • Operational Cost is Low
• More time Required • Less time Required
• As volume increases , Logistics to be increased • No such requirement
• Geographical Restrictions • No such restrictions, Payment anywhere in World

8. BENEFITS
• Bills / EMIs paid automatically
• No frequent writing of cheques / standing in the queue
• Easy reconciliation
• Cost Effective
• No interaction between payer & payee

9. PAYMENT & SETTLEMENT SYSTEM AUDIT
• As per RBI requirements, all authorised payment system operators should get
their system audited periodically.
• The audit is to ensure that the technology deployed to operate the payment
system is being operated in safe, secure , sound & efficient manner .

10. India supports a variety of electronic payments and settlement system,
both Gross as well as Net settlement systems.
EPS VARIANTS
NEFT ( National Electronic Fund Transfer )
RTGS ( Real Gross Time Settlement )
IMPS ( Immediate Payment Service )
Alternate Payment Channel
• ATM
• Internet Banking

11. NEFT
• The National Electronic Fund Transfer (NEFT) system is a nationwide system that
facilitates individuals, firms and corporates to electronically transfer funds from
any bank branch to any individual, firm or corporate having an account with any
other bank branch in the country.
• Highly secured – smart card based access
• Positive Confirmation of credits to the originator.

12. RTGS
• Real Time Gross Settlement is a funds transfer mechanism where transfer of
money takes place from one bank to another on a 'real time' and on 'gross' basis
• Minimum value of transaction should be ₹2,00,000
• For transactions of ₹2 lakhs to ₹5 lakhs -up to ₹25 per transaction
• Credit on real time basis

13. IMPS
• Immediate Payment Service (IMPS) is a service through which money can be
transferred immediately from one account to the other account, within the same
bank or accounts across other banks.
• This facility can be availed 24X7 and on all public and bank holidays including RBI
holidays.
• Most banks offer this facility free of cost to encourage paperless payment system

14. ATM
• Automated Teller Machines serve many other purposes, apart from functioning
as terminals for withdrawals and balance inquiries, such as payment of bills
through ATM’s, applications for cheques books and loans can also be made via
ATM’s.
• Withdrawal from any bank ATM made free up to 3 times a month

15. ISSUE OF AUTHORISATION
The Reserve Bank may, if satisfied, after any inquiry under section 6 or otherwise,
that the application is complete in all respects and that it conforms to the
provisions of this Act and the regulations issue an authorization for operating the
payment system under this Act having regard to the following considerations,
namely:-
• The need for the proposed payment system or the services proposed to be
undertaken by it;
• The financial status, experience of management and integrity of the applicant;
• Monetary and credit policies

16. CONT……
• Interests of consumers, including the terms and conditions governing their
relationship with payment system providers;
• Every application for authorization shall be processed by the Reserve Bank as
soon as possible and an endeavor shall be made to dispose of such application
within six months from the date of filing of such application.

17. SAFETY CONCERNS IN DIGITAL PAYMENTS
Demonetization , subsequent cash crunch & subsequent government agenda to
push for digital payments has brought the safety & privacy concerns of digital
payments.
We note that there are 3 kinds of risks that are unique to digital payments.
1. Device Related Risk
If someone loses the mobile & there is no password protection of the phone, the e-
wallet may be compromised.
2. Access Risk

18. OFFENCES & PENALTY
• Under the PSS Act 2007, Operating a payment system without authorization ,
failure to produce the statements , non-compliance of directions of Reserve Bank
violations of any of the provisions of the Act, Regulations, order, directions etc.,
are offences punishable for which Reserve Bank can initiate criminal prosecution.
• Reserve Bank is also empowered to impose fine for certain contraventions under
the Act ( Under section 26 & 30 )
• Imprisonment for a term extended for 2 years or with fine which may extend to
twice the amount of the electronic funds

19. FOREGIN ENTITIES UNDER PAYMENT SYSTEM
• The PAYMENT & SETTLEMENT SYSTEM does not prohibit foreign entities from
operating a payment system in India. The Act does not discriminate/differentiate
between foreign entities and domestic entities. Foreign entities viz., card
networks like MasterCard (Singapore), Visa Worldwide Pte. Limited (Singapore),
etc. are authorised under the PSS Act and operating card schemes in India.

20. Thank You
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