The International Financial Services Centre Authority (IFSCA), the regulatory body in Gift City, Gujarat, has introduced new regulations for fintech firms seeking to offer payment services within the tax-free zone.
Under these regulations, Payment Service Providers (PSPs), also known as Merchant Service Providers, are now required to obtain a separate license from IFSCA in addition to their existing authorization from the Reserve Bank of India (RBI).
PSPs play a crucial role in facilitating online payments for businesses, offering various methods such as online banking, credit cards, debit cards, e-wallets, and cash cards.
Published on February 1, the 18-page gazette outlines the authorization requirements for PSPs and establishes a comprehensive framework for their operations within the Gift City in Gandhinagar.
Several startups, including Razorpay, Cashfree, and PhonePe, along with more than 10 foreign and 16 domestic banks, have begun offering services to merchants in the Special Economic Zone (SEZ), primarily focusing on facilitating cross-border payments. However, this sector is still in its early stages of development.
For example, Cashfree provides an international collection service to exporters who hold accounts with Yes Bank, an IBU at Gift City. In January, Paytm announced plans to invest Rs 100 crore in Gift City to develop cross-border solutions.
The newly issued guidelines, known as the ‘IFSCA (Payment Services) Regulations, 2024’, cover five specific areas: cross-border money transfer, account issuance, merchant acquisition services, e-money issuance service, and escrow services.
According to a circular dated February 1, 2024, issued by IFSCA, the regulations aim to enable Indian fintech entities seeking to offer their products globally to establish IFSC as their operational base, facilitating the expansion of their services to jurisdictions worldwide. These regulations have been aligned with international standards governing payment services, similar to those in Singapore, the United Kingdom, and the European Union.
The circular also highlights that the regulations are designed to support the process of reverse-flipping, as many Indian fintech companies with holding companies in foreign jurisdictions provide one or more payment services covered by the regulations.
As of now, Payment Service Providers (PSPs) in India are regulated by the RBI’s ‘Payment and Settlement Systems Act, 2007’, while cross-border payments fall under the recently issued Payment Aggregators of Cross-Border Transactions (PA-CB) regulation.
