The Payment and Settlement Systems (PSS) Act, 2007 is an Indian law enacted to regulate and supervise payment systems in the country. It designates the **Reserve Bank of India (RBI)** as the primary regulatory authority and provides the legal framework for operating payment systems. The Act ensures smooth functioning, settlement finality, and mandatory authorization for entities operating payment systems.
Key Definitions under the PSS Act
Payment System
A system enabling payments between a payer and a beneficiary, which may involve clearing, payment, or settlement services is known as Payment system under PSS ACT. It includes operations using credit cards, debit cards, and smart cards.
Electronic Funds Transfer (EFT)
A transfer of funds initiated by a person through instructions to a bank for debiting or crediting an account electronically is known as EFT. This may be done via internet banking, card transactions, or mobile payments.
Settlement
The process of discharging payment obligations by settling instructions. Settlements can occur in securities, foreign exchange, derivatives, or other financial transactions.
Net Settlement System
A payment system where transactions are batched together and settled on a net basis at designated intervals, rather than individually.
Gross Settlement System
A payment system where each instruction is settled individually in real-time, without netting against other transactions.
Purpose and Authority under the PSS Act
* Regulation and Supervision: The Act’s primary objective is to **regulate and supervise payment and settlement systems** in India.
* Reserve Bank of India (RBI): Designated as the sole authority for governance, regulation, and supervision of payment systems.
* BPSS (Board for Regulation and Supervision of Payment and Settlement Systems): Established by the RBI to exercise its powers and responsibilities under the Act.
* Authorization: No entity can commence or operate a payment system in India without **RBI authorization**.
Summary Table – Key Definitions & Provisions under the PSS Act, 2007
| Term / Provision | Definition / Explanation | Example / Notes |
| Payment System | System enabling payments between payer and beneficiary, involving clearing, payment, or settlement services. | Credit card, debit card, smart card systems. |
| Electronic Funds Transfer (EFT) | Transfer of funds via electronic instructions to a bank for debiting/crediting an account. | Internet banking, UPI, NEFT, card payments. |
| Settlement | Process of discharging obligations by settling payment instructions. | Securities, foreign exchange, derivatives transactions. |
| Net Settlement System | Settlement of batched transactions on a net basis at intervals. | Clearing house settling interbank transactions at day-end. |
| Gross Settlement System | Settlement of each transaction individually, in real-time. | RTGS (Real-Time Gross Settlement). |
| Regulation & Supervision | RBI empowered to regulate and supervise all payment and settlement systems. | Ensures security, transparency, and efficiency. |
| Reserve Bank of India (RBI) | Designated authority under the Act for governance of payment systems. | Grants licenses, sets rules, supervises operators. |
| BPSS | Board for Regulation and Supervision of Payment and Settlement Systems, constituted by RBI. | Exercises RBI’s powers related to payment systems. |
| Authorization | No entity can operate a payment system without RBI authorization. | Paytm, PhonePe, Visa, Mastercard require RBI approval. |
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