Section 2(1) (i) of the PSS Act 2007 defines a payment system to
mean a system that 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 (Section 34 of the PSS
Act 2007 states that its provisions will not apply to stock exchanges
or clearing corporations set up under stock exchanges). It is further
stated by way of an explanation that a “payment system” includes the
systems enabling credit card operations, debit card operations, smart
card operations, money transfer operations or similar operations.
All systems (except stock exchanges and clearing corporations set up under stock exchanges) 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 definition of a system provider. To decide whether a particular entity operates the payment system, it must perform either the clearing or settlement or payment function or all of them.
All systems (except stock exchanges and clearing corporations set up under stock exchanges) 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 definition of a system provider. To decide whether a particular entity operates the payment system, it must perform either the clearing or settlement or payment function or all of them.
Q. Are entities operating a payment
system or intending to operate a payment system required to get a
license, approval or authorization for the purpose?
Ans. In terms of Section 4 of the PSS Act, 2007 no
person other than the Reserve Bank can operate or commence a payment
system unless authorized by the Reserve Bank. Any person desirous of
commencing or operating a payment system needs to apply for
authorization under the PSS Act, 2007(Section 5).
The application for authorization has to be made as per Form A
under Regulation 3(2) of the Payment and Settlement Systems
Regulations, 2008. The application is required to be duly filled up and
submitted with the stipulated documents to the Reserve Bank.
All entities operating payment systems or desirous of setting
up such systems are required to apply for authorization under the Act.
The application for authorisation can be downloaded from the following link.
Any unauthorized operation of a payment system would be an offence
under the PSS Act, 2007 and accordingly liable for penal action under
that Act.
Q. Is there any application fee to be submitted along with the application for authorization?
Ans. A sum of Rs 10,000/- is required to be submitted
as application fee, which can be submitted by cash or cheque or payment
order or demand draft or electronic fund transfer in favour of the
Reserve Bank along with the application for authorisation.
Q. What are the factors which the
Reserve Bank will consider while deciding on an application submitted
for authorization?
Ans. The Reserve Bank will consider factors like the
need for the proposed payment system, the technical standards and
design of proposed system, the security procedures and terms and
conditions of operation of the proposed system, the procedure for
netting of payment instructions, risk management processes, financial
status of the applicant, experience of management and integrity of
applicant, consumer interests, monetary and credit policies and other
relevant factors while deciding on an application for authorization for
commencing or operating a payment system (Section 7 of PSS Act, 2007).
The Reserve Bank will endeavour to dispose of all applications received for authorization within six months from the date of their receipt.
The Reserve Bank will endeavour to dispose of all applications received for authorization within six months from the date of their receipt.
Q. Can the Reserve Bank refuse to grant authorization to commence or operate a payment system?
Ans. Yes, the Reserve Bank can refuse to grant
authorization under the PSS Act, 2007.However, the Reserve Bank has to
give a written notice to such an applicant giving the reasons for
refusal and also a reasonable opportunity of being heard {Section7 (3)
of the PSS Act 2007}.
Q. Can the Reserve Bank revoke authorization granted under the PSS Act 2007?
Yes, the Reserve Bank is empowered to revoke the
authorization granted by it, if the system provider contravenes any
provisions of the Act or Regulations, fails to comply with its orders/
directions or violates the terms and conditions under which the
authorization was granted to it (Section 8 of PSS Act 2007).
Q. Is there any appellate authority to whom an aggrieved applicant
whose application for authorization is refused or a system provider
whose authorization is revoked, can appeal?
Ans. The aggrieved applicant or aggrieved system
provider can appeal to the Central Government within 30 days from the
date on which the order of refusal or revocation is conveyed to him
(Section 9 of PSS Act, 2007).
Q. Can the Reserve Bank collect any authorisation fees and direct the applicant to furnish a security deposit?
Ans. Yes, Section 7 of the PSS Act, 2007 empowers the
Reserve Bank to collect authorization fees while granting
authorization. It can also call upon the applicant to furnish a
security deposit for the proper conduct of the payment system. The
quantum of authorization fees and security deposit can be decided by
the Reserve Bank.
Q. Does the Reserve Bank have powers to lay down any standards?
Ans. The Reserve Bank is empowered to prescribe the
format of payment instructions, size and shape of instructions, timings
to be maintained by payment systems, manner of funds transfer criteria
for membership including continuation, termination and rejection of
membership, terms and conditions for participation in the payment
system etc (Section 10 of PSS Act, 2007).
Q. Whether the Reserve Bank can call for
returns, information etc.,from the system provider with regard to the
operation of the payment system?
Ans. The Reserve Bank is empowered to call for from
the system provider returns, documents and other information relating
to the operation of the payment system. The system provider and all
system participants are required to provide Reserve Bank access to any
information relating to the operation of the payment system (Section 12
and 13 of PSS Act, 2007).
Q. Can the Reserve Bank inspect the premises of the system provider?
Ans. The Reserve Bank, in order to ensure compliance
of the provisions of the PSS Act, 2007 and the Regulations made
thereunder, can depute an officer authorized by it to enter any premises
where a payment system is being operated, inspect any equipment,
including any computer system or document, and call upon any employee
of the system provider or participant to provide any document or
information as required by it (Section 14 of PSS Act, 2007).
Q. Can the Reserve Bank issue directions to the system provider?
Ans. The Reserve Bank is authorized to issue
directions to a payment system or system participant to cease or desist
from engaging in any act, omission or course of conduct or direct it
to perform any acts as well as issue general directions in the interests
of the smooth operation of the payment system (Section 17 and 18 of
the PSS Act, 2007).
