Payment and settlement systems in India

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Payment and settlement systems are used for financial transactions in India. Covered by the Payment and Settlement Systems Act of 2007 (PSS Act), legislated in December 2007, they are regulated by the Reserve Bank of India (RBI) and the Board for Regulation and Supervision of Payment and Settlement Systems.^[1]

India has multiple payments and settlement systems, both gross and net settlement systems. For gross settlement India has a real-time gross settlement (RTGS) system called by the same name. Its net settlement systems include the Electronic Clearing Services (ECS Credit), Electronic Clearing Services (ECS Debit), credit cards, debit cards, the National Electronic Fund Transfer (NEFT) system, Immediate Payment Service, and Unified Payments Interface (UPI).

According to a survey by Celent, the use of e-payments instead of paper-based transactions increased considerably between 2004 and 2008 due to technological developments and increasing consumer awareness and comfort with internet and mobile transactions.^[2]

The RBI is encouraging alternative methods of payments to make the financial payment and settlement process in India more secure and efficient. It has made RTGS compulsory for high-value transactions. It introduced NEFT and NECS (National Electronic Clearing Services) to encourage individuals and businesses to switch from paper to electronic transactions.

Growing availability of Internet connected services and the issuance of 1.3 Billion biometric ID numbers in the region has made it easier for Indian customers to open bank accounts and use electronic payment systems. As of 2023 there are 907.4 million Internet users in India (64% of the population), a 35% increase since 2018.^[3] 63% payments still being made in cash. E-payments have been heavily promoted in India showing consumers the various ways they can make these payments Including ATMs, the Internet, mobile phones and drop boxes.

Due to RBI efforts and the [???] (BPSS), now over 75% of all transaction volume is electronic, including both large-value and retail payments. Out of this 75%, 98% come from the RTGS (large-value payments) whereas a meager 2% come from retail payments. This means consumers have not yet accepted this as a regular means of paying their bills and still prefer conventional methods. Retail payments if made via electronic modes are done by ECS (debit and credit), EFT and card payments.^[2] The Reserve Bank on Monday asked banks to put in place additional arrangements for export and import transactions in Indian rupees in view of increasing interest of the global trading community in the domestic currency. Before putting in place this mechanism, banks will require prior approval from the Foreign Exchange Department of the Reserve Bank of India (RBI), the central bank said in a circular.^[4]