The Payment and Settlements Systems Act, 2007 (PSS Act) is the primary legislative Act that governs and regulates all electronic, digital, and traditional payment and settlement systems operating within India. The Act was assented to in December 2007 and formally came into force on August 12, 2008. It was created to solve the problem of a fragmented regulatory structure for payment mechanisms like cheque clearing and electronic transfers, which had led to gaps in oversight and systemic risks, especially with the rapid growth of electronic payments. The PSS Act established a sound legal framework to ensure the safety, efficiency, and transparency of 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 UPI, NEFT, and RTGS. A key mechanism is the mandatory authorization requirement, which prohibits any entity from operating a payment system without explicit prior approval from the RBI. The Act also provides legal recognition for netting and settlement finality, ensuring that once a financial settlement is determined, it is final and irrevocable, even if a participating entity becomes insolvent. Furthermore, Section 25 of the Act makes the dishonour of an electronic fund transfer due to insufficient funds a punishable criminal offence, providing legal parity with cheque-bouncing cases under the Negotiable Instruments Act, 1881.
The PSS Act connects directly to the Reserve Bank of India Act, 1934, as it designates the RBI as the regulator. It also connects to the Payments Regulatory Board (PRB), which replaced the erstwhile Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) from May 9, 2025, following amendments to Section 3 via the Finance Act, 2017. Recently, the Act has seen proposed changes through the Taxation and Other Laws (Amendment) Bill, 2026, which seeks to amend Section 10A. This amendment is an enabling provision that authorizes the government to permit charges like the Merchant Discount Rate (MDR) on certain electronic payment modes, though the government has clarified that Person-to-Person (P2P) and everyday consumer UPI transactions will remain free for citizens.