Sreedhar’s CCE PAYMENT SYSTEMS IN INDIA-HANDOUT-1

BANKING HANDOUT
AWARENESS 1

PAYMENT SYSTEMS IN INDIA

PAYMENT AND SETTLEMENT SYSTEMS ACT, 2007
• The Payment and Settlement Systems Act of 2007 is a law in India that provides

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the legal framework for regulating and supervising payment systems.
• Authority: PSS Act, 2007 designates the Reserve Bank of India - RBI as the
authority.
• Objective: To ensure the safety and efficiency of payment systems in India
• The PSS Act, 2007 received the assent of the President in December 2007 and it
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came into force with effect from August 2008.
• The Reserve Bank of India is authorized under the PSS Act to constitute a Com-
mittee of its Central Board known as the Board for Regulation and Supervision of

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Payment and Settlement Systems - BPSS, to exercise its powers and perform its
functions and discharge its duties under this statute.
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• The PSS Act, 2007 also provides the legal basis for Netting and Settlement Final-
ity.
• In India, other than the Real Time Gross Settlement - RTGS system all other
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payment systems function on a Net Settlement basis.

Regulations: PSS Act, 2007
• Under the PSS Act, 2007, two Regulations have been made by the Reserve Bank
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of India - RBI, namely
• The Board for Regulation and Supervision of Payment and Settlement Systems
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Regulations, 2008
• The Payment and Settlement Systems Regulations, 2008.
• Both these Regulations came into force along with the PSS Act, 2007 in August
2008.
Licencing of Payment System Operator
• In terms of Section 4 of the PSS Act, 2007 no person other than the Reserve Bank
of India can operate or commence a payment system unless authorized by the
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RBI. Any person desirous of commencing or operating a payment system must
apply for authorization under Section 5, PSS Act, 2007.
• The PSS Act 2007 does not prohibit foreign entities from operating a payment
system in India and this Act does not discriminate/differentiate between foreign
entities and domestic entities.
• All entities, irrespective of domestic or foreign, need to obtain license/approval/
authorization from the Reserve Bank of India before commencing payment sys-
tem operations in the country.
• The PSS Act does not place any restriction on the types of payment systems/
services a foreign entity can provide.
• Foreign entities viz., Card networks like MasterCard, Visa, etc. are authorised
under the PSS Act and operating Card schemes in India. also, Cross-Border Re-
mittance service providers viz., Western Union Financial Services, MoneyGram
Payment Systems, etc. have also been authorised and are providing Remittance
services.

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Sreedhar’s CCE PAYMENT SYSTEMS IN INDIA-HANDOUT-1

Netting and Settlement Finality

• The PSS Act 2007 defines Netting and legally recognizes Settlement Finality.
• It states that a settlement, whether Gross or Net, will be final and irrevocable as
soon as the Money, Securities, Foreign Exchange or Derivatives or other transac-
tions payable as a result of such settlement are determined, whether or not such
Money, Securities or Foreign Exchange or other transactions is actually paid.
DIGITAL PAYMENTS
Key Developments in India’s Digital Payments Space

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• 2004 – Launch of the National Financial Switch - NFS
• 2007 – Passage of the Payment and Settlement Act
• 2008 – Formation of National Payments Corporation of India – NPCI to manage
retail payments in India & it is acting as Umbrella Organization for Retail Pay-
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• 2010 – Launch of Immediate Payment Service IMPS – IMPS
• 2010 – Launch of Aadhar Enabled Payment System – AePS

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• 2010 – Formation of Online Payment Gateway Service Provider - OPGSP Guide-
lines
• 2011 – Launch of Cheque Truncation System – CTS
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• 2012 – Launch of RuPay
• 2012 – Launch of National Automated Clearing House – NACH
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• 2013 – Introduced Aadhar Payment Bridge System – APBS

• 2014 – Launch *99# [earlierly known as National Unified USSD Platform]
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• 2014 – Formation of Payments Banks Guidelines
• 2015 – Launch of Contactless Payments in India
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• 2016 – Launch of Unified Payment Interface – UPI

• 2016 – Launch of National Electronic Toll Collection – NETC – FASTag
• 2016 – Launch of Bharat Interface for Money - BHIM
• 2017 – Launch of BHARAT QR
• 2017 – Launch of BHIM AADHAAR
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• 2017 – Introduction of RuPay Credit Card
• 2017 – Launched Bharat BillPay [Now known as Bharat Connect]
• 2019 – Launch of RuPay NCMC Card
• 2019 – Launch of Ombudsman Scheme for Digital Transactions
• 2020 –Launch of UPI Autopay
• 2021 – Launch of e-RUPI
• 2021 – Introduced Reserve Bank – Integrated Ombudsman Scheme [RB-IOS]
• 2022 – Launch of UPI 123PAY
• 2022 – Launch of UPI – Lite
• 2022 - Launch of Central Bank Digital Currency – CBDC by RBI
• 2023 - Launch of UPI – ATM
• 2023 –Launch of Credit Line on UPI
• 2024 – Launch of UPI – Circle [for Delegated Payments]

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Benefits of Promoting Digital Payments

• The transition to a cashless society has great potential to reduce the prevalence
of counterfeit currency.
• Online transactions make it easier to track and identify fraud
• Digital Payments can reduce the scope of tax evasion by making it easier to track
transactions and comply with tax laws.
• Digital Payments address the issue of change by eliminating the need for physi-
cal cash, allowing for precise transactions of any amount, and providing immedi-
ate access to funds without the need to carry or find exact change.
• The rise of digital payments can lead to an increase in the lifespan of physical
cash by reducing the overall demand for cash in smaller, everyday transactions.

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Factors contributing to the growth of Digital Payments
• Improved mobile and internet penetration
• Regulatory and Government Interventions
• Tech-savvy millennial population
• Innovative products and platforms
PLASTIC MONEY

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What is Plastic Money?
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Plastic Money refers to various forms of payment Cards used instead of cash to
carry out transactions.
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Credit Cards, Debit Cards, Prepaid Cards, and other electronic payment Cards
fall under the Plastic Money category.
They allow users to make transactions quickly and securely.
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• Plastic money is a safer and more convenient way to carry and spend money. A
swipe, tap, or inserting the Card are ways to transact.
Benefits of Plastic Money
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• Easy to carry
• No paperwork
• Secure transactions
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• Rewards and benefits
• Building Credit History [in the case of Credit Card]
CREDIT CARD – ISSUANCE AND CONDUCT DIRECTIONS, 2022
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• If the customer receives an Unsolicited Card, he/she should refrain from activat-
ing or providing consent for activation of the Card through OTP or any other
means.
• If no consent is received for activating the Card, the Card-Issuer is required to
close the Credit Card account without any cost to the customer within 7 working
days from the date of seeking confirmation from the customer and shall also
inform the customer that the Credit Card account has been closed. After receiv-
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ing the intimation from the Card-Issuer that the Card account has been closed,
the customer shall destroy the Card. Further, the customer may file a complaint
with the Card-Issuer against the issuance of an Unsolicited Card and escalate it
to the RBI Ombudsman as per the Integrated Ombudsman Scheme.
• If the Card is not activated by the Cardholder for more than 30 days from the date
of issuance, Card-Issuers shall seek One Time Password - OTP based consent.
• In addition to financial transactions, any process initiated by the Cardholder
such as the generation of statement, change of PIN, change in transaction con-
trols, etc., shall be considered for treating a Card as Used. However, any calls
made to the customer care centre, for reasons other than those cited above, shall
not be considered towards usage of a Card.
• In case a Cardholder does not clear the total amount due within the payment due
date, an interest-free credit period will be lost, and interest may be levied from
the date of transaction on the outstanding amount and not on the total amount
due. Further, late payment fees and other charges relating to delay in payment
shall be levied only on the outstanding amount (adjusted for payments/refunds/
reversed transactions as and when credited) after the payment due date and not
on the total amount due.
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• Card-Issuers shall not capitalize i.e., levy interest or any other charges, on the
unpaid taxes/levies/charges.
• The Cardholder shall be provided an option to choose any date as the starting or
closing day of the billing cycle at least once.
• Usage of a Credit Card beyond the sanctioned credit limit (i.e., Overlimit) re-
quires prior explicit consent of the Cardholder, as a fraud minimisation mecha-
nism.
• The liability for dues shall rest solely with the principal Cardholder and not with
the add-on Cardholders.
• The Reserve Bank of India has not prescribed any requirement for insurance

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coverage on debit or credit Cards. However, in case a Card-Issuer or a Card
payment network provides an insurance cover, complimentary or chargeable (with
the consent of the Cardholder), the Card-Issuer shall ensure that the relevant
nomination details are recorded by the Insurance Company and the availability of
insurance is included, along with other information, in every statement.
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A Co-Branding Partner - CBP acting as a BC or technology service provider for the
Card-Issuer shall abide by the rules as prescribed in the instructions issued by
RBI for such activities.
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De-activation/Blocking of a credit Card temporarily curtails the ability of a
Cardholder to make any transaction in a credit Card account while still main-
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taining the credit/account relationship with the Card-Issuer.
• Closure of a Credit Card on the other hand amounts to termination of the ac-
count-based relationship between the Cardholder and the Card-Issuer. The re-
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quest for closure has to be honoured within 07 working days.

• The Card-Issuer shall also report to Credit Information Companies - CICs suitably
about the closure of the Card account.
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• For redressal of his/her grievance, the Customer must first approach the con-
cerned Card-Issuer. If the Card-Issuer does not respond within a period of 30
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days after filing of the complaint or rejects the complaint wholly/partly or if the
customer is not satisfied with the response/resolution given by the Card-Issuer,
the customer can lodge his/her complaint with the Ombudsman.
KEY TERMINOLOGY RELATED TO CREDIT CARD
• Contactless Payments
• Overlimit Facility
• Card Verification Value – CVV
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• Card Protection Plan – CPP
• Cash Advance Fee – CAF
• Merchant Discount Rate – MDR
• Annual Maintenance Charge – AMC
• Grace Period
• Minimum Amount Due – MAD
• Total Amount Due – TAD
• Hot listing
• Annualised Percentage Rate – APR
• Card Not Present – CNP
• Additional Factor Authentication – AFA
• Bill Cycle
• Add-on Card
• Most Important Terms and Conditions – MITC
• Interchange Fee

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