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The Payment and Settlement Systems(PSS) Act, 2007 received the assent of the President on 20th December 2007 and it came into force with effect from 12th August 2008. The PSS Act, 2007 provides for the regulation and supervision of payment systems in India and designates the Reserve Bank of India (Reserve Bank) as the authority for that purpose and all related matters. The Reserve Bank is authorized under the Act to constitute a Committee of its Central Board known as the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), to exercise its powers and perform its functions and discharge its duties under this statute. The Act also provides the legal basis for netting and settlement finality. This is of great importance, as in India, other than the Real Time Gross Settlement (RTGS) system all other payment systems function on a net settlement basis. Under the PSS Act, 2007, two Regulations have been made by the Reserve Bank of India, namely, the Board for Regulation and Supervision of Payment and Settlement Systems Regulation, 2008 and the Payment and Settlement Systems Regulations, 2008. Both these Regulations came into force along with the PSS Act, 2007 on 12th August 2008. The Board for Regulation and Supervision of Payment and Settlement Systems Regulation, 2008 deals with the constitution of the Board for Regulation and Supervision of Payment and Settlement System (BPSS), a Committee of the Central Board of Directors of the Reserve Bank of India. It also deals with the composition of the BPSS, its powers and functions, exercising of powers on behalf of BPSS, meetings of the BPSS and quorum, the constitution of Sub-Committees/Advisory Committees by BPSS, etc., The BPSS exercises the powers on behalf of the Reserve Bank, for regulation and supervision of the payment and settlement systems under the PSS Act, 2007. The Payment and Settlement Systems Regulations, 2008 covers matters like form of application for authorization for commencing/ carrying on a payment
system and grant of authorization, payment instructions and determination of standards of payment systems, furnishing of returns/documents/other information, furnishing of accounts and balance sheets by system provider etc., . The central bnak of our country is usually he driving force in the development of national payment systems. The Reserve Bank of India as the central bank of India playing this developmental role and has taken several initiatives for Safe, Secure, Sound, Efficient, Accessible and Authorized payment systems in the country. The Board for Regulation and Supervision of Payment and Settlement Systems(BPSS), a sub-committee of Central Board of Reserve Bank of India is the highest policy making body on payment system in the country. The BPSS is empowered for authorizing, prescribing policies and setting standards for regulating and supervising all the payments and settlements in the country. The Department of Payment and Settlement Systems of Reserve Bank of India serves as the Secretariat to the Board and executes its Directions. In India, the Payment and Settlement system are regulated by the Payment and Settlement Systems Act, 2007(PSS Act) which was legislated in December 2007. The PSS Act as well as the Payment and Settlement System Regulation, 2008 framed there under came into effect from August 12, 2008. In terms of Section 4 of PSS Act, no person other than the RBI can commence or operate a payment system in India unless authorized by RBI. Reserve Bank has since authorized payment system operators of pre-paid payment instruments, card schemes, cross-border in-bound money transfers, Automated Teller Machine (ATM) networks and centralized clearing arrangements.
All systems (except stock exchanges and clearing corporations set up under stock exchanges) carrying out either clearing or settlement or payment operations or all of them are regarded as payment systems. All entities operating such systems will be known as system providers. Also all entities operating money transfer systems or card payment systems or similar systems fall within the definition of a system provider. To decide whether a particular entity operates the payment system, it must perform either the clearing or settlement or payment function or all of them.
MANDATES This is considered to be a Pull System. They are also Known as Paper based Payments. It includes - CHEQUES - DRAFTS
GIROs This is considered to be a Push System. It is also known as Electronic Payments. It includes - ECS - NEFT - RTGS - CARDs - EFT - IMPS
CHEQUES
Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by the person who has deposited money with the banker, requiring him to pay on demand a certain sum of money only to or to the order of certain person or to the bearer of instrument
2. Order Cheque
When the word "bearer" appearing on the face of a cheque is cancelled and when in its place the word "or order" is written on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified therein as the payee, or to any one else to whom it is endorsed (transferred).
4. Crossed Cheque
Crossing of cheque means drawing two parallel lines on the face of the cheque with or without additional words like "& CO." or "Account Payee" or "Not Negotiable". A crossed cheque cannot be encashed at the cash counter of a bank but it can only be credited to the payee's account.
5. Anti-Dated Cheque
If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as "anti-dated cheque". Such a cheque is valid upto six months from the date of the cheque.
6. Post-Dated Cheque
If a cheque bears a date which is yet to come (future date) then it is known as post-dated cheque. A post dated cheque cannot be honoured earlier than the date on the cheque.
7. Stale Cheque
If a cheque is presented for payment after six months from the date of the cheque it is called stale cheque. A stale cheque is not honoured by the bank.
DEMAND DRAFT
Demand draft is defined as per Section 85(a) of NI Act 1881as an order to pay money drawn by one office of a bank upon another office of a same bank for a sum of money payable to order on demand.
FEATURES
It is payable to order on demand(85-A NI Act) It cannot be issued as payable to bearer(Sec 31 RBI Act) If a Bank fails to honour a bank draft, it renders itself liable for damages. Similarly omission of signatures or wrong signatures can also make the bank liable. By prior arrangement, the bank paying could be a different bank also.
to be credited on the specified value date and is presently available at all major cities in the country.
ECS (DEBIT)
The ECS (Debit) Scheme was introduced by RBI to provide a faster method of effecting periodic and repetitive collections of utility companies. ECS (Debit) facilitates consumers / subscribers of utility companies to make routine and repetitive payments by mandating bank branches to debit their accounts and pass on the money to the companies. This tremendously minimises use of paper instruments apart from improving process efficiency and customer satisfaction. There is no limit as to the minimum or maximum amount of payment. This is also available across major cities in the country.
branches to participate in the system, irrespective of their location across the country.
NATIONL ELECTRONIC FUND TRANSFER (NEFT) SYSTEM In November 2005, a more secure system was introduced for facilitating oneto-one funds transfer requirements of individuals / corporate. Available across a longer time window, the NEFT system provides for batch settlements at hourly intervals, thus enabling near real-time transfer of funds. Certain other unique features viz. accepting cash for originating transactions, initiating transfer requests without any minimum or maximum amount limitations, facilitating one-way transfers to Nepal, receiving confirmation of the date / time of credit to the account of the beneficiaries, etc., are available in the system.
final and irrevocable. This was introduced in 2004 and settles all inter-bank payments and customer transactions above 2 lakh.
CARDS
A bank card is a plastic card issued by a bank to its clients that may perform one or more of the following services:
ATM card, card used for transactions at automatic teller machines DEBIT card, card linked to a bank account and used for making purchases CREDIT card, card attached to a revolving credit line
DEBIT CARD
A debit card (also known as a bank card or check card) is a plastic card that provides the cardholder electronic access to his or her bank account(s) at a financial institution. Some cards have a stored value with which a payment is made, while most relay a message to the cardholder's bank to withdraw funds from a payee's designated bank account. The card, where accepted, can be used instead of cash when making purchases. In some cases, the primary account number is assigned exclusively for use on the Internet and there is no physical card. In many countries, the use of debit cards has become so widespread that their volume has overtaken or entirely replaced cheques and, in some instances, cash transactions. The development of debit cards, unlike credit cards and charge cards, has generally been country specific resulting in a number of different systems around the world, which were often incompatible. Since the mid 2000s, a number of initiatives have allowed debit cards issued in one
country to be used in other countries and allowed their use for internet and phone purchases. Unlike credit and charge cards, payments using a debit card are immediately transferred from the cardholder's designated bank account, instead of them paying the money back at a later date. Debit cards usually also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash. Merchants may also offer cash back facilities to customers, where a customer can withdraw cash along with their purchase
CREDIT CARD
A credit card is a payment card issued to users as a system of payment. It allows the cardholder to pay for goods and services based on the holder's promise to pay for them. The issuer of the card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user. A credit card is different from a charge card: a charge card requires the balance to be paid in full each month. In contrast, credit cards allow the consumers a continuing balance of debt, subject to interest being charged. A credit card also differs from a cash card, which can be used like currency by the owner of the card. The size of most credit cards is 85.60 53.98 mm (33/8 21/8 in), conforming to the ISO/IEC 7810 ID-1 standard. Credit cards have an embossed bank card number complying with the ISO/IEC 7812 numbering standard.
In the above context, NPCI has carried out a pilot on mobile payment system initially with 4 member banks viz State Bank of India, Bank of India, Union
Bank of India and ICICI Bank in August 2010. Yes Bank, Axis Bank and HDFC Bank have joined this pilot in month of September, October and November 2010 respectively. Interbank Mobile Payment Service (IMPS) public launch happened on 22nd November 2010 by Smt. Shyamala Gopinath, DG RBI at Mumbai and this service is now available to the Indian public.
IMPS offer an instant, 24X7, interbank electronic fund transfer service through mobile phones. IMPS facilitate customers to use mobile instruments as a channel for accessing their bank accounts and put high interbank fund transfers in a secured manner with immediate confirmation features. This facility is provided by NPCI through its existing NFS switch. The eligible criteria for the Banks who can participate in IMPS are that the Bank should have approval from RBI for Mobile Banking Service.
OBJECTIVES OF IMPS
To enable bank customers to use mobile instruments as a channel for accessing their banks accounts and remit funds Making payment simpler just with the mobile number of the beneficiary To sub-serve the goal of Reserve Bank of India (RBI) in electronification of retail payments To facilitate mobile payment systems already introduced in India with the Reserve Bank of India Mobile Payment Guidelines 2008 to be interoperable across banks and mobile operators in a safe and secured manner To build the foundation for a full range of mobile based Banking services.
Features
Fund Transfer: Transfer fund to your own accounts, other Axis Bank
accounts or Other Bank account seamlessly.
Value Added Services: Pay Utility bills for more than 160 billers,
Recharge Mobile, Create Virtual Cards, Pay any Visa Credit Card bills, Register for estatement and sms banking etc.
Currently there are many avatars of ECS operating in the country with ECS on a standalone mode available in 81 centers. The way forward would be to consolidate local ECS into RECS and ultimately to NECS.
Currently the account numbers maintained across various banks are different based on their requirements and range from 10 digits to 17 digits. In this regard, the adoption of International Bank Account Number (IBAN)/ Basic Bank Account Number (BBAN) could be explored. IBAN/BBAN provides a format for account identification and also contains validation information in the form of check digits which can be validated at source based on a prescribed single standard procedure. The IBAN/BBAN in itself contains all the routing information needed to get a payment from one bank to another. The concept of a payment hub is being perceived to allow consolidation of multiple payment systems into one centrally managed payment system. Such a payment hub with the latest technology would result in facilitating faster and smoother electronic payment transfers as opposed to the current system of individual interfaces being responsible for inputting electronic payment instructions into various systems. Once a payment hub becomes functional an individual bank would simply need to input an electronic payment instruction to the hub which would then automatically route the instructions to various payment systems.
3. Development of Infrastructure and an integrated payment system- The payment system infrastructure in the country which is
well developed and robust is to be further augmented to ensure safety, security, robustness for providing low cost transaction processing capability and flexibility to system participants.
significant role as in the case of White Label ATMs. Other initiatives in the directions could be revisiting the current KYC norms for various prepaid payment products.
SYSTEMATIC RISK
Risks in payment systems refer to the possibility of payments being incomplete. The impact can be measured in terms of damaging value or level of confidence in payment systems. For example, in case of incorrect or delayed payments, there are costs arising from transferring funds back, interest charges, replacement costs and other types of charges. In case of not receiving or receiving partial payments, there will be a principal loss, while in some cases, which involve high value payments or payment participants at large, this may cause systemic risks among financial institutions and eventually affect the stability of the financial system. Such risks generally exist in the payment systems that are not settled on a real-time basis i.e. net settlement systems, whereby the longer the time difference between payment and settlement time, the higher the risk exposure it is. Moreover, the risks will also depend on the volume and value of transactions in the payment system.
SETTLEMENT RISK
Settlement risk is the risk that a counterparty does not deliver a security or its value in cash as per agreement when the security was traded after the other counterparty or counterparties have already delivered security or cash value as per the trade agreement. One form of settlement risk is foreign exchange settlement risk or crosscurrency settlement risk, sometimes called Herstatt risk.
CHALLENGES OF PSS
The payment and settlement systems is a central bank function whereby the objectives of safety and efficiency are promoted by monitoring existing and planned systems, assessing them against these objectives and, where necessary, inducing change. By overseeing payment and settlement systems, central banks help to maintain systemic stability and reduce systemic risk, and to maintain public confidence in payment and settlement systems. The Payment and Settlement Systems Act, 2007 and the Payment and Settlement Systems Regulations, 2008 framed there under, provide the necessary statutory backing to the Reserve Bank of India for undertaking the Oversight function over the payment and settlement systems in the country.