Payment and Settlement Systems in GIFT IFSC: Regulatory Framework, Authorisation and Compliance Landscape

Introduction to Payment Systems in IFSC

The International Financial Services Centre (IFSC) at GIFT City has emerged as India’s gateway to global financial markets, enabling cross-border financial services under a unified regulatory framework. A robust payment and settlement system is central to this vision, facilitating efficient, secure, and compliant movement of funds across jurisdictions. The introduction of the IFSCA (Payment Services) Regulations, 2024 establishes a structured ecosystem for payment service providers, ensuring alignment with global standards while supporting fintech innovation and international financial integration.

Legal and Regulatory Framework

The payment and settlement ecosystem in IFSC is governed by a combination of the International Financial Services Centres Authority Act, 2019 and the IFSCA (Payment Services) Regulations, 2024 . These regulations provide a comprehensive framework for licensing, regulation, and supervision of payment service providers operating in or from IFSC.

The definition of “payment services” is clearly articulated, covering activities such as account issuance, e-money issuance, escrow services, merchant acquisition, and cross-border money transfers. At the same time, certain activities—such as transactions within payment systems, securities settlements, and technical support services—are explicitly excluded to maintain regulatory clarity.

This dual approach ensures that only entities directly handling customer funds and payment execution fall within the regulatory ambit, thereby enhancing supervisory efficiency while allowing supporting infrastructure providers to operate without unnecessary regulatory burden.

Types of Payment Services in IFSC

The regulations classify payment services into specific categories, each addressing distinct business models and transaction requirements within the IFSC ecosystem . These services collectively enable a full-stack payment infrastructure supporting global financial operations.

Type of Payment Service	Description	Key Use Cases
Account Issuance Services	Issuing and operating payment accounts (including cards, accounts, wallets)	Multi-currency accounts, corporate treasury accounts
E-Money Issuance	Issuance of prepaid electronic monetary value	Digital wallets, fintech platforms, prepaid instruments
Escrow Services	Holding funds on behalf of transacting parties in escrow accounts	M&A transactions, trade settlements, platform-based transactions
Cross-Border Money Transfer	Transfer of funds between IFSC and global jurisdictions	Remittances, international trade payments, global payroll
Merchant Acquisition Services	Processing payments on behalf of merchants	Payment gateways, POS solutions, e-commerce platforms

This classification ensures that the regulatory framework is both functional and adaptable, covering traditional banking-linked services as well as emerging fintech models.

Authorisation Framework for Payment Service Providers

Any entity intending to provide payment services in IFSC must obtain prior authorisation from the IFSCA . The applicant must be incorporated as a company with its registered office in IFSC, reflecting the regulator’s focus on substance and local presence.

The authorisation process involves submission of a detailed application, evaluation of business model, governance structure, financial soundness, and compliance readiness. The Authority may grant an “in-principle approval” subject to fulfilment of specified conditions before issuing the final certificate of authorisation.

Key regulatory checks include:

• Fit and proper criteria for directors and key managerial personnel
• Adequate infrastructure and operational capability
• Protection of customer interests

The process is designed to be completed within approximately six months, balancing regulatory diligence with business facilitation.

Capital and Classification Requirements

The regulations prescribe minimum net worth requirements to ensure financial stability of payment service providers . A regular payment service provider must maintain a net worth of USD 100,000 at commencement and scale up to USD 200,000 within three years.

Entities crossing specified transaction thresholds are classified as “Significant Payment Service Providers,” requiring higher capital levels (up to USD 500,000). This classification is based on transaction volumes and value handled, particularly in cross-border and e-money services.

This tiered structure allows:

• Entry-level participation for startups
• Scalable compliance aligned with growth
• Enhanced oversight for systemically important entities

Governance and Risk Management Framework

Payment service providers are required to implement a robust governance structure backed by board oversight and clearly defined reporting lines . The framework must include internal controls, risk management policies, and accountability mechanisms.

A key area of focus is operational and third-party risk management. Entities must:

• Assess criticality of outsourced services
• Conduct due diligence on third-party providers
• Maintain ongoing monitoring mechanisms
• Develop exit strategies for critical service dependencies

The emphasis on governance reflects the regulator’s intent to align IFSC payment entities with global best practices in financial risk management and operational resilience.

Safeguarding of Funds and Escrow Mechanism

One of the most critical aspects of the regulatory framework is the safeguarding of customer funds . Payment service providers must segregate customer funds from their own and maintain them in escrow accounts with IFSC Banking Units (IBUs).

Key safeguards include:

• Daily protection of funds received from customers
• Maintenance of separate escrow accounts for different services
• Prohibition on use of customer funds for lending or investment

In the case of e-money issuance, the balance in escrow accounts must always match the outstanding e-money liability. This ensures that customer funds remain fully protected and accessible, even in adverse scenarios.

AML, KYC and Regulatory Compliance

Compliance with Anti-Money Laundering (AML), Counter-Terrorist Financing (CTF), and Know Your Customer (KYC) guidelines is mandatory for all payment service providers .

Entities must:

• Implement robust customer onboarding procedures
• Monitor transactions for suspicious activities
• Extend compliance controls to agents and intermediaries
• Maintain transaction records for a minimum of ten years

Given the cross-border nature of IFSC operations, compliance assumes greater significance, ensuring that the ecosystem remains aligned with international regulatory expectations and avoids reputational risks.

Customer Protection and Disclosure Norms

The regulations place strong emphasis on transparency and customer protection . Payment service providers must clearly disclose their regulatory status, fees, and transaction details to users.

Key requirements include:

• Pre-transaction disclosure of charges and timelines
• Issuance of transaction confirmations
• Clear communication of dispute resolution mechanisms

Additionally, entities must establish grievance redressal systems capable of resolving complaints within 30 days. In case of unresolved disputes, mechanisms such as online arbitration or conciliation may be used.

Reporting, Audit and Ongoing Compliance

Payment service providers are subject to continuous regulatory oversight through reporting and audit requirements .

They must:

• Submit audited financial statements within three months of finalisation
• Maintain detailed records of operations and transactions for at least ten years
• Provide periodic regulatory reports as prescribed

The Authority also retains the right to conduct inspections and audits, ensuring adherence to regulatory standards and safeguarding the integrity of the IFSC financial ecosystem.

Conclusion

The payment and settlement system framework in GIFT IFSC represents a well-balanced regulatory approach that combines innovation with strong governance and risk controls. By clearly defining permissible activities, establishing rigorous authorisation norms, and mandating robust compliance mechanisms, the IFSCA has created a globally competitive environment for payment service providers.

As cross-border transactions, fintech innovation, and digital payment models continue to evolve, IFSC is well-positioned to emerge as a strategic hub for international payment solutions, offering both regulatory certainty and business scalability.