Payment and Settlement Systems Act

1. PAYMENTSETTLEMENT ACT2007 www.enterslice.com

2. INTRODUCTION 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. PAYMENTSYSTEM PAYMENTSYSTEM PAYMENTSYSTEM • 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. IMPORTANCEOFPAYMENT&SETTLEMENT IMPORTANCEOFPAYMENT&SETTLEMENT SYSTEM 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 transmission, clearing, netting and/or settlement of monetary obligations and financial instruments between their participant and common rules, for the

5. ELECTRONICPAYMENT&SETTLEMENTSYSTEMS ELECTRONICPAYMENT&SETTLEMENTSYSTEMS ININDIA ININDIA • 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. ELECTRONICPAYMENTSYSTEM • Simpler • Safer • Faster • Cost Effective • Enhanced Reach • Eco- Friendly

7. WHYEPS WHYEPS CASH/PAPER ELECTRONIC • Physical Movementofcash/paperinstruments • Operational Costisveryhigh ElectronicMovement • • Operational CostisLow • MoretimeRequired • Asvolumeincreases,Logisticstobeincreased • GeographicalRestrictions • LesstimeRequired • Nosuchrequirement • Nosuchrestrictions,Payment anywhereinWorld

8. BENEFITS BENEFITS • Bills/EMIspaidautomatically • Nofrequentwritingofcheques /standinginthequeue • Easyreconciliation • CostEffective • Nointeractionbetweenpayer&payee

9. PAYMENT&SETTLEMENTSYSTEMAUDIT PAYMENT&SETTLEMENTSYSTEMAUDIT • 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. Indiasupportsavarietyofelectronicpaymentsandsettlementsystem,Indiasupportsavarietyofelectronicpaymentsandsettlementsystem, bothGrossaswellasNetsettlementsystems. EPSVARIANTS NEFT(NationalElectronicFundTransfer) RTGS(RealGrossTimeSettlement) IMPS(ImmediatePaymentService) AlternatePaymentChannel • ATM • InternetBanking

11. NEFT • TheNationalElectronicFundTransfer (NEFT)systemisanationwidesystemthat facilitatesindividuals,firmsandcorporatestoelectronicallytransferfundsfrom anybankbranchtoanyindividual,firmorcorporatehavinganaccountwithany otherbankbranchinthecountry. • Highlysecured– smartcardbasedaccess • PositiveConfirmationofcreditstotheoriginator.

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. ISSUEOFAUTHORISATION ISSUEOFAUTHORISATION 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. SAFETYCONCERNSINDIGITALPAYMENTS SAFETYCONCERNSINDIGITALPAYMENTS Demonetization,subsequentcashcrunch&subsequentgovernmentagendato pushfordigitalpaymentshasbroughtthesafety&privacyconcernsofdigital payments. Wenotethatthereare3kindsofrisksthatareuniquetodigitalpayments. 1. DeviceRelatedRisk Ifsomeonelosesthemobile&thereisnopasswordprotectionofthephone,thee- walletmaybecompromised. 2.AccessRisk

18. OFFENCES&PENALTY OFFENCES&PENALTY • UnderthePSSAct2007,Operatingapaymentsystemwithoutauthorization, failuretoproducethestatements,non-complianceofdirectionsofReserveBank violationsofanyoftheprovisionsoftheAct,Regulations,order,directionsetc., areoffencespunishableforwhichReserveBankcaninitiatecriminalprosecution. • ReserveBankisalsoempoweredtoimposefineforcertaincontraventionsunder theAct (Undersection26&30) • Imprisonmentforatermextendedfor2yearsorwithfinewhichmayextendto twicetheamountoftheelectronicfunds

19. FOREGINENTITIESUNDERPAYMENTSYSTEM FOREGINENTITIESUNDERPAYMENTSYSTEM • 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.

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