Regulations relating to Electronic Payment systems

Payment and Settlements Systems Act, 2007:The Payment and Settlements Systems Act (PSS), 2007 is the Act which governs the electronic payments systems in India. This Act gives the Reserve Bank of India (RBI) the power to oversee all the matters which relates to electronic payment systems, the settling of it as well as the legalities which are included. The PSS Act specifies that no person, other than the RBI, can operate a payment system except with due authorization issued by the RBI (unless specifically exempted by the terms of the PSS Act itself). The Act provides for netting and settlement finality and gives formal oversight powers over overall payment and settlement systems with the RBI.

The Reserve Bank of India has introduced the concept of regularities to safeguard the interests of the customers while making a payment or a transaction through the mode of electronic payments. In the year 2009, the RBI issued a regulation which dealt with the opening and controlling of the accounts for electronic payments which has an intermediary involved hence these regulations were called the intermediary regulation.

This regulation stated that any such entity to become a payment system had to mandatorily have an approval from the RBI. There were exceptions given to some types of payment systems because they settle their accounts with the help of a nodal account and are not involved in settling any transaction between a customer and businessmen.

The Act of Payment and Settlements is one that was issued under this Intermediary regulation. The Act deals with Appoints the RBI as the authority that regulates payment and settlement systems; Makes it compulsory to obtain RBI authorization to operate a payment system; Warrants the RBI to regulate and supervise payment systems by determining standards and calling for information, regular reports, documents etc; Warrants the RBI to audit and conduct on- and off-site inspections of the payment systems; Warrants the RBI to issue directives; and Provides for netting and settlement to be final and irrevocable.

The Information Technology Act, 2000 (IT Act) 

It doesn’t have specific sections solely dedicated to online payments. However, it lays the groundwork for secure electronic transactions, which online payments rely on. Here are some relevant sections of the IT Act:

• Section 4: Legal Recognition of Electronic Records: This section grants legal validity to electronic records, including transaction receipts and bank statements generated during online payments. These records can be used as evidence in court if needed.
• Section 5: Legal Recognition of Electronic Signatures: This section recognizes digital signatures as a valid method for authentication. Digital signatures are crucial for securing online payments by ensuring the authenticity of the sender and preventing tampering with payment instructions.
• Section 6: Use of Electronic Records and Electronic Signatures in Government and its Agencies: While this section primarily focuses on government transactions, it sets a precedent for the use of electronic records and signatures, which online payment systems leverage.
• Section 7: Retention of Electronic Records: This section mandates the retention of electronic records for a specific period, ensuring a record of online transactions for potential disputes or audits.
• Section 43: Penalty and Compensation for Damage to Computer, Computer System, etc.: This section discourages cybercrimes like hacking or data breaches that could target online payment systems. It allows for penalties and compensation for damages caused by such activities.