The Payment and Settlement Systems Act, 2007 (PSS Act) is the primary legislative framework governing and regulating all electronic, digital, and traditional payment and settlement systems in India. It is a type of Act of Parliament, assented to in December 2007 and formally brought into force on August 12, 2008. The Act was created to solve the problem of fragmented regulation and systemic risk that arose with the rapid growth of electronic payments in the early 22nd century, establishing a sound legal structure for secure and efficient financial transactions.
The Act works by designating the Reserve Bank of India (RBI) as the sole authority for the regulation and supervision of all payment systems, including RTGS, NEFT, UPI, and card networks. A key mechanism is the mandatory authorization requirement under Section 4, which prohibits any entity from commencing or operating a payment system without explicit prior approval from the RBI. Furthermore, the Act provides the crucial legal basis for netting and settlement finality, ensuring that once a transaction is settled, it is final and irrevocable, which is vital for reducing systemic risk in the financial system. The Act also connects to the Negotiable Instruments Act, 1881, by making the dishonour of electronic fund transfer instructions a punishable criminal offence under Section 25, providing legal parity with cheque-bouncing cases.
The Act has seen recent changes, particularly concerning its regulatory body and the framework for digital payments. The erstwhile Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) was replaced by the Payments Regulatory Board (PRB), effective from May 9, 2025, following amendments to Section 3 via the Finance Act, 2017. More recently, the Taxation and Other Laws (Amendment) Bill, 2026, modified Section 10A to create an enabling provision for the government to permit charges, such as a nominal Merchant Discount Rate (MDR), on certain electronic payment modes like UPI, though everyday consumer-to-consumer and small merchant transactions are intended to remain free. The core function of the RBI as the sole regulator and the legal recognition of settlement finality have stayed the same.