Payment and Settlement Systems Act – Digital Payment Rules & Complete Guide

Key Insights 

1. The Payment and Settlement Systems Act gives the RBI the authority to act as the only regulator for all payment systems.

2. The Payment and Settlement Systems Act 2007 states that once a transaction is settled, it cannot be reversed and is legally binding.

3. In 2024, changes removed criminal penalties for minor offences and set up a new Payments Regulatory Board (PRB).

The Payment and Settlement Systems Act 2007 section 27 is the basis of India’s digital finance system. The Reserve Bank of India enforces this law to make sure your transactions are safe and efficient. 

Recent changes, including the Payment and Settlement Systems Act 2024, have updated important sections of the Payment and Settlement Systems Act No. 28 of 2005 to address new risks and innovations.

How to Use the Payment and Settlement Systems Act?

Entities that want to operate under the Payment and Settlement Systems Act 2007 need to get authorisation from the RBI for their payment systems. It is also important to understand enforcement rules, such as the Section 25 payment and settlement act bailable or not, which explains the penalties for breaking the law.

The Payment and Settlement Systems Act 2007 serves as the rulebook for India's digital payment systems. It gives operators the authority to run these systems and makes sure they are safe and reliable. 

Payment and Settlement Systems Act 2007 Section 25 of the Act works like traffic police, making sure everyone follows the rules and faces legal consequences if they do not.

Example:

If I want to launch a new UPI-based service, I need approval under the Payment and Settlement Systems Act 2007. The Payment and Settlement Systems Act 2007 Section 25 of the Act lists penalties for operating without authorisation. This matters for legal planning, but the Section 25 payment and settlement act bailable or not specifies if the offence is bailable or not.

Highlights of the Payment and Settlement Systems Act

Think your online payments just work on their own? It’s actually the Payment and Settlement Systems Act, making sure every digital transaction in India is safe.

• From May 9, 2025, the RBI replaced the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) with the new Payments Regulatory Board (PRB) under the PSS Act, 2007. The PRB met for the first time in January 2026.
• The Jan Vishwas Act changed the PSS Act to decriminalise some minor offences, which makes it easier to do business. Now, instead of imprisonment, penalties for non-compliance have been increased.
• The penalty for not giving information to the RBI under Section 30 has increased from ₹5,00,000 to ₹10,00,000.
• The RBI now covers new entities such as Payment Aggregators (PA-P) and Payment Banks, and has made their security protocols stricter.
• The RBI has started real-time payee name checks for NEFT and RTGS to make transactions safer.

The Act now helps create a digital payments system that is safer, more up-to-date, and better for businesses.

History and Background of Payment and Settlement Systems ACT

The Payment and Settlement Systems (PSS) Act, 2007, was introduced to regulate and supervise payment systems in India. It was approved by the President on December 20, 2007, and came into force on August 12, 2008. The Act allows the Reserve Bank of India (RBI) to oversee all payment systems, helping to make electronic, cheque, and card transactions safer.

The Act created the legal basis for India's secure digital payments system, which the RBI now oversees.

Bonus Tip: The PSS Act, 2007, was approved by the President on 20 December 2007 and took effect on 12 August 2008.

Features & Importance of Payment and Settlement Systems ACT

Ever wondered who keeps your online payments safe and smooth in India? That’s the Payment and Settlement Systems Act at work, making sure every digital transaction is secure and hassle-free.

Here are the key features and the importance of payment settlement system act:
 

The Act provides the legal framework that supports India’s modern, secure, and reliable digital economy.

Conclusion

The Payment and Settlement Systems Act is an important law that helps India’s digital economy grow. It ensures that every transaction is safe, completed properly, and runs smoothly. This creates trust, supports new ideas, and lets the RBI protect the country’s financial systems.

FAQs

What does the Payment and Settlement Systems Act mean, and what actions can be taken under it?

The Payment and Settlement Systems (PSS) Act, 2007, allows the Reserve Bank of India (RBI) to supervise all payment systems in India, including RTGS, NEFT, UPI, and card networks. This law helps keep these systems safe and organised, ensures transactions are final, and gives the RBI the power to approve, check, and penalise operators when necessary.

Can they proceed with this regarding an ₹18,00,000 loan under the Payment and Settlement Systems Act?

Yes, lenders are allowed to take legal action under Section 25 of the Payment and Settlement Systems Act, 2007 if an electronic funds transfer, such as a NACH or ECS mandate, is dishonoured for an ₹18,000 loan. This is treated as a criminal offence, much like a bounced cheque, and can result in up to two years in prison or a fine of up to twice the loan amount.

What is the difference between a payment system and a settlement system?  

A payment system enables the transfer of funds or financial instruments between a payer and a beneficiary. A settlement system is the final step, where funds are legally and irrevocably transferred between financial institutions to complete the transaction. Payment is the instruction; settlement is the final closing of the debt.

What is a payment settlement?  

“Settle payment” is the final step when money moves from the buyer’s account to the seller’s account. After a transaction is approved, this process makes sure the seller gets paid for their goods or services.

Are there any fees associated with transaction settlement?

Yes. The merchant’s acquirer takes out transaction settlement fees before sending funds to the merchant’s account.