Regulation Of Payment Gateways And Payment Aggregators Under The Payment And Settlement Systems (PSS) Act: Legal Framework And Challenges

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Aron Varghese, O.P Jindal Global University

ABSTRACT

This paper examines the regulatory framework governing Payment Aggregators (PAs) and Payment Gateways (PGs) in India under the Payment and Settlement Systems (PSS) Act, 2007 and subsequent Reserve Bank of India (RBI) guidelines. As crucial intermediaries in India’s digital payment ecosystem, PAs and PGs facilitate seamless transactions between merchants and consumers, the rampant growth in the usage of these intermediaries necessitated a robust oversight to ensure financial stability and consumer protection. The study highlights the evolution of RBI regulations, including the 2020 Guidelines on Regulation of Payment Aggregators and Payment Gateways, which introduced stringent mandates such as capital requirements (₹15–25 crore net worth), governance standards, data localisation, tokenization, and KYC/AML compliance. The 2024 draft guidelines further extend these regulations to offline PAs, emphasising enhanced merchant due diligence and real-time compliance monitoring. Despite strengthening security and accountability, the regulatory framework poses challenges for market participants. Compliance costs, data localisation mandates, and technical requirements like PCI-DSS adherence and tokenization strain smaller fintech startups, potentially stifling innovation and competition. The case study of Paytm underscores the RBI’s strict enforcement, as non- compliance with KYC norms led to significant operational restrictions. The paper concludes that while RBI regulations effectively mitigate risks and enhance trust in digital payments, balancing stringent oversight with flexibility is crucial to fostering innovation. Regular updates to the regulatory framework, tailored to evolving technological and market dynamics, will be vital to sustaining India’s position as a global fintech leader.

REGULATION OF PAYMENT GATEWAYS AND PAYMENT AGGREGATORS UNDER THE PAYMENT AND SETTLEMENT SY.

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