comparison of the Payment and Settlement Systems Act, 2007 (PSS Act) with the EU’s Payment Services Directive 2 (PSD2) and a note on how the RBI supervises FinTechs under the PSS Act:
📊 PSS Act (India) vs PSD2 (European Union)
| Aspect | PSS Act, 2007 (India) | PSD2 (EU Directive) |
|---|---|---|
| Regulator | Reserve Bank of India (RBI) | European Central Bank & National Competent Authorities |
| Scope | All payment and settlement systems in India | All electronic payment services across the EU |
| Authorization Requirement | Mandatory for any payment system operator (Section 4) | Mandatory for Payment Service Providers (PSPs) |
| Third-party Access (TPP) | Limited; controlled entry (FinTechs require RBI nod) | Explicitly enables Third-Party Providers (TPPs) with strong rules |
| Customer Protection | Governed by RBI directives (e.g., grievance redressal, KYC) | Very strong — includes rights to refunds, authentication rules |
| Data Access & Sharing | No explicit open banking law; RBI controls via directions | PSD2 mandates open banking with APIs under customer consent |
| Strong Customer Authentication | Mandated through RBI circulars (e.g., 2FA, OTP) | Mandatory through SCA (Strong Customer Authentication) |
| Settlement Finality | Yes, legal certainty under Section 23 | Yes, required under EU laws |
| Penalty/Enforcement | Monetary penalties (up to ₹10 lakh + daily fine) | Administrative sanctions, fines, and revocation |
👩💻 RBI’s Supervision of FinTechs under the PSS Act
RBI has increasingly brought FinTech companies under its regulatory umbrella, especially those involved in payment processing, digital wallets, and payment gateways.
🏛️ FinTechs regulated under PSS Act include:
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Prepaid Payment Instruments (PPIs) like Paytm Wallet, Amazon Pay
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Payment Aggregators (PAs) like Razorpay, PhonePe, Cashfree
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UPI-based apps via NPCI oversight (e.g., Google Pay, PhonePe)
🛠️ RBI Oversight Involves:
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Mandatory authorization and licensing
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Capital adequacy requirements (₹15 crore minimum net worth for aggregators)
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KYC/AML compliance
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Reporting obligations to RBI and Financial Intelligence Unit (FIU)
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Interoperability mandates for PPIs
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Audit requirements and cybersecurity guidelines
🔮 Future Trends:
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RBI working on Digital Public Infrastructure (DPI) like UPI, ONDC, and CBDC
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Potential for a PSS Act amendment to address AI/ML-based payment innovations
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Global shift toward regtech, sandbox models, and real-time supervision
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