RBI Master Directions on Authorisation to Operate a Payment System (PSO)

Source: BS

Context:

In June 2026, the Reserve Bank of India (RBI) issued the Master Directions on Authorisation to Operate a Payment System to consolidate the existing guidelines for entities seeking to operate payment systems under the Payment and Settlement Systems (PSS) Act, 2007. The directions, which come into effect immediately, provide a unified framework covering eligibility criteria, authorisation, perpetual validity of licences, voluntary surrender, and cooling-off requirements for Payment System Operators (PSOs).

What is a Payment System Operator (PSO)?

• An entity authorised by the RBI to operate a payment system.
• A payment system enables clearing, payment, or settlement of funds between participants.
• No entity, other than RBI, can operate a payment system without prior RBI authorisation (Section 4, PSS Act 2007).

Why was the Framework Consolidated?

• Multiple existing guidelines had been issued over time.
• Need for unified clarity for fintech and payment industry.
• Aligns with global standards (BIS Principles, FATF).
• Brings regulatory certainty to fintech ecosystem.
• Strengthens systemic risk management.
• Enhances customer protection.

Key Features of the Master Directions

1. Perpetual Validity of Licences

• Authorisation to new PSOs: Perpetually valid.
• Existing operators: May receive perpetual validity on renewal, provided:
  • Regulatory requirements are met.
  • No supervisory concern.
• Non-compliant existing operators: Get one-year renewals until deficiencies addressed.
• Significance: Removes burden of periodic re-authorisation; provides stability.

2. On-Tap Availability

• Authorisation to operate payment systems will continue to be available on an on-tap basis.
• No fixed window: Applications can be submitted at any time.
• Process: Through the RBI’s portal.
• Useful for: Innovative and niche PSOs, fintech entrants.

3. FATF Safeguards

• Investment restrictions retained for non-compliant FATF jurisdictions.
• New investors from FATF non-compliant jurisdictions:
  • Cannot acquire significant influence in PSOs.
  • Aggregate voting rights capped below 20 per cent.
• Purpose: AML/CFT compliance.

4. “Fit and Proper” Criteria

Applicants must meet criteria relating to:

• Integrity.
• Financial soundness.
• Governance standards.

5. Capital and Net-Worth Requirements

• Applicants must comply with capital and net-worth requirements prescribed for specific payment systems.
• Varies by PSO type:
  • PPI issuers: about ₹100 crore minimum net worth.
  • Card networks: Higher requirements.
  • Specialised PSOs: Tailored requirements.

6. Voluntary Surrender Process

Entities seeking to discontinue operations must:

• Settle outstanding liabilities to:
  • Customers.
  • Merchants.
  • Agents.
  • Banks.
• Obtain auditor-certified confirmation.
• Notify RBI.
• Submit wind-up plan.

7. Cooling-Off Period

A 1-year cooling-off period may be imposed on entities whose authorisation has been:

Category	Cooling-Off Period
Revoked by RBI	1 year
Not renewed	1 year
Voluntarily surrendered	1 year
Application rejected	1 year

During the cooling-off, such entities cannot apply for permission to operate any payment system.

Three-Tier PSO Classification

Tier	PSO Type	Examples
Tier 1	Systemic Authorised Payment Systems (large national)	NPCI (RTGS, NEFT, UPI), Card networks, ATM networks
Tier 2	Specialised PSOs (specific functions)	PPI issuers, Cross-border money transfer operators, BBPS, TReDS
Tier 3	Niche/innovation PSOs	Account aggregators, payment intermediaries, FinTechs

About Payment and Settlement Systems (PSS) Act, 2007

• Enacted: 2007.
• Effective: 2008.
• Purpose: Provide regulation and supervision of payment systems in India.
• Key provisions:
  • Section 4: RBI authorisation required for operating payment systems.
  • Section 7: Issuance of authorisation.
  • Section 8: Revocation of authorisation.
  • Section 17: Power to call for returns and documents.
  • Section 18: Power to issue directions.
• Designated authority: Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) under RBI.

Major PSOs in India (Examples)

PSO	Function
NPCI (National Payments Corporation of India)	Operates RTGS, NEFT, UPI, IMPS, Bharat BillPay (BBPS), FASTag, RuPay
CCIL (Clearing Corporation of India Ltd)	Settles money market, government securities, forex transactions
Card networks: Visa, Mastercard, RuPay, American Express	Operate card payment networks
PPI issuers: PhonePe, Paytm, Mobikwik	Prepaid Payment Instruments
Cross-border money transfer operators: Wise, Remitly	International remittances
TReDS platforms: Receivables Exchange of India Ltd	MSME receivables discounting

Key Terms

• Payment System Operator (PSO): An entity authorised by RBI under Section 4 of PSS Act, 2007 to operate a payment system that enables clearing, payment, or settlement of funds between participants.
• Master Directions: A consolidated set of regulatory guidelines issued by RBI that brings together multiple individual circulars on a topic into a single, comprehensive document.
• Payment and Settlement Systems (PSS) Act, 2007: The primary legislation governing payment systems in India, providing RBI with regulatory and supervisory powers.
• Perpetual Validity: A licence that does not expire unless revoked or surrendered, removing the need for periodic re-authorisation.
• On-Tap: An application window that is continuously open throughout the year, not restricted to specific periods.
• Cooling-Off Period: A specified time during which an entity is prevented from applying for a new authorisation after its previous one was revoked, surrendered, or rejected.
• FATF (Financial Action Task Force): An intergovernmental body that sets global standards for Anti-Money Laundering (AML) and Counter-Terror Financing (CFT).
• FATF Non-Compliant Jurisdictions: Countries that do not adequately comply with FATF’s 40 Recommendations, placed on FATF’s “grey” or “black” lists.
• “Fit and Proper” Criteria: Standards that applicants must meet on integrity, financial soundness, and governance to be authorised.
• Voluntary Surrender: A process by which a PSO can discontinue operations by settling outstanding liabilities and notifying RBI.
• Voting Rights Cap: A regulatory limit on how much voting control an investor can have, used to prevent undue influence.
• AML/CFT: Anti-Money Laundering / Counter-Terror Financing, global regulatory standards to prevent financial crimes.
• NPCI: National Payments Corporation of India, an umbrella organisation that operates several major payment systems (UPI, RTGS, NEFT, IMPS, RuPay).
• PPI (Prepaid Payment Instrument): A payment instrument like digital wallets that store value for future use.
• BPSS: Board for Regulation and Supervision of Payment and Settlement Systems, the designated authority under RBI for PSS oversight.

Practice MCQs

Q1. With reference to the RBI’s Master Directions on Authorisation to Operate a Payment System (June 2026), consider the following statements:

1. The Master Directions consolidate existing guidelines on authorisation of Payment System Operators (PSOs).
2. They provide a unified framework covering eligibility criteria, authorisation, perpetual validity, voluntary surrender, and cooling-off requirements.
3. The directions are issued under Section 4 of the Payment and Settlement Systems (PSS) Act, 2007.
4. Authorisation granted to new PSOs is valid for only 5 years.

How many of the above statements are correct?

(a) Only one
(b) Only two
(c) Only three
(d) All four
(e) None

(Statement 4 is wrong; new PSOs receive PERPETUAL validity, NOT 5-year validity.)

Q2. With reference to the validity provisions of the Master Directions, consider the following statements:

1. New PSOs receive perpetual validity of authorisation.
2. Existing operators may receive perpetual validity on renewal if regulatory requirements are met and there is no supervisory concern.
3. Non-compliant existing operators receive one-year renewals until deficiencies are addressed.
4. Authorisation cannot be revoked once granted.

How many of the above statements are correct?

(a) Only one
(b) Only two
(c) Only three
(d) All four
(e) None

(Statement 4 is wrong; RBI retains revocation powers under Section 8 of PSS Act 2007.)

Q3. With reference to FATF safeguards in the Master Directions, consider the following statements:

1. Investment restrictions are retained for jurisdictions identified as non-compliant by the Financial Action Task Force (FATF).
2. New investors from such non-compliant jurisdictions cannot acquire significant influence in PSOs.
3. Aggregate voting rights for such investors are capped below 20 per cent.
4. FATF is a body that sets standards for Anti-Money Laundering (AML) and Counter-Terror Financing (CFT).

How many of the above statements are correct?

(a) Only one
(b) Only two
(c) Only three
(d) All four
(e) None

Q4. With reference to the application process and cooling-off period, consider the following statements:

1. Authorisation is available on an on-tap basis through the RBI’s portal.
2. Applicants must meet “fit and proper” criteria relating to integrity, financial soundness, and governance.
3. The RBI may impose a 1-year cooling-off period on entities whose authorisation has been revoked, not renewed, voluntarily surrendered, or whose application has been rejected.
4. The cooling-off period is only 30 days.

How many of the above statements are correct?

(a) Only one
(b) Only two
(c) Only three
(d) All four
(e) None

(Statement 4 is wrong; the cooling-off period is 1 year, NOT 30 days.)

Q5. With reference to the voluntary surrender process, consider the following statements:

1. Entities seeking to discontinue operations must settle outstanding liabilities to customers, merchants, agents, and banks.
2. They must obtain auditor-certified confirmation of settlement before surrendering their licences.
3. The Payment and Settlement Systems (PSS) Act, 2007 is the legal basis for PSO regulation.
4. NPCI is one of the major PSOs operating in India, running UPI, RTGS, NEFT, and IMPS.

How many of the above statements are correct?

(a) Only one
(b) Only two
(c) Only three
(d) All four
(e) None

Q6. With reference to the three-tier classification of PSOs, consider the following statements:

1. Tier 1 includes systemic authorised payment systems like NPCI’s RTGS, NEFT, UPI.
2. Tier 2 includes specialised PSOs like PPI issuers, BBPS, TReDS, and cross-border money transfer operators.
3. Tier 3 includes niche/innovation PSOs like account aggregators and payment intermediaries.
4. All PSOs require the same minimum net worth, regardless of tier.

How many of the above statements are correct?

(a) Only one
(b) Only two
(c) Only three
(d) All four
(e) None

(Statement 4 is wrong; minimum net worth varies by PSO type (e.g., ₹100 crore for PPI issuers, higher for card networks).)

Answer Key

1. (c), Statements 1, 2, 3 are correct; Statement 4 is wrong because new PSOs receive perpetual validity.
2. (c), Statements 1, 2, 3 are correct; Statement 4 is wrong because RBI retains revocation powers.
3. (d), All four statements are correct.
4. (c), Statements 1, 2, 3 are correct; Statement 4 is wrong because the cooling-off period is 1 year.
5. (d), All four statements are correct.
6. (c), Statements 1, 2, 3 are correct; Statement 4 is wrong because net worth requirements vary by PSO type.