The Payment and Settlement Systems Act, 2007 (PSS Act) is a foundational Act of the Indian Parliament that provides the statutory framework for the regulation and supervision of all payment systems in India. It was assented to in December 2007 and formally came into force on August 12, 2008. The Act was created because India's growing electronic payments lacked a unified regulatory structure, which created systemic risks and gaps in consumer protection.
The Act solved this problem by designating the Reserve Bank of India (RBI) as the sole authority for regulating and supervising payment systems. A key mechanism is the mandatory authorization under Section 4, which prohibits any entity from operating a payment system—including card networks, wallets, and electronic fund transfers—without explicit prior approval from the RBI. Furthermore, the Act provides legal recognition for netting and settlement finality, ensuring that once a transaction is settled, it is final and irrevocable, even if a participating entity becomes insolvent. This is a vital safeguard for financial stability.
The PSS Act connects directly to the RBI's oversight of systems like RTGS, NEFT, and UPI. The RBI exercises its powers through the Payments Regulatory Board (PRB), which replaced the earlier Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) on May 9, 2025, following an amendment to Section 3 via the Finance Act, 2017.
Recently, the Act was amended again in August 2026 to modify the framework for the Merchant Discount Rate (MDR) on digital payments. This amendment gives the government the legal backing to decide, via notification, which electronic payment modes, such as UPI and RuPay card transactions, would remain free from MDR charges. The core regulatory power of the RBI and the principle of settlement finality remain unchanged.