Payments regulation everywhere begins with a definitional question: which activities are payment services, and which merely support them. The IFSCA (Payment Services) Regulations, 2024 answer that question with a short list, a longer list of exclusions, and a proportionality mechanism that scales obligations with size. For a fintech considering GIFT IFSC, those three elements determine whether authorisation is needed at all, and what it will cost.

The Five Payment Services

Under Schedule I, Part A, of the IFSCA (Payment Services) Regulations, 2024, five activities qualify as payment services in GIFT IFSC:

• Account issuance service, including e-money account issuance.

• E-money issuance service.

• Escrow service.

• Cross-border money transfer service.

• Merchant acquisition service.

Under Regulation 3, any person seeking to provide payment services in or from GIFT IFSC must obtain a certificate of authorisation from the International Financial Services Centres Authority (IFSCA), unless specifically exempt. This requirement also covers providers operating from GIFT IFSC while serving customers outside India, as the regulations recognise payment service users both within and outside the IFSC.

A payment service provider in GIFT IFSC must be a company. However, persons specified in Schedule IV are exempt from the authorisation requirement, subject to the applicable conditions.

What is not a Payment Service

Part B excludes a series of activities that would otherwise be caught. They include:

• payment transactions by a commercial agent authorised to negotiate or conclude the sale or purchase of goods or services;
• transactions based on paper instruments such as cheques, cashier’s orders, demand drafts, traveller’s cheques, gift cheques and paper postal orders;
• transactions within a payment or securities settlement system between payment service providers, settlement agents, central counterparties, clearing houses, central banks and other participants;
• securities asset servicing payments such as dividends, income, distributions, redemptions or sales carried out by such persons;
• transactions between payment service providers, their agents or branches for their own account;
• intra-group transactions between a holding company and its subsidiary, or between subsidiaries of the same holding company, without intermediary intervention by a payment service provider other than group entities;
• cash-in-transit services;
• technical service providers that support payment services without at any time possessing the funds to be transferred, including processing and storage of data, trust and privacy protection services, data and entity authentication, information technology, communication networks, and provision and maintenance of terminals and devices; and
• limited-network and limited-range instruments, being instruments usable only at the issuer’s premises, within a limited network of providers with direct commercial agreements, or for a very limited range of goods or services.

The technical service provider carve-out is the one most often relied on by technology vendors. Its condition is precise: the provider must never be in possession of the funds. A vendor that touches settlement flows, even briefly, falls outside it.

Regular and Significant Providers

The regulations create two tiers. A regular payment service provider is any authorised provider other than a significant one. IFSCA designates a provider as significant when the Part C thresholds are met:

Designation is not merely a label. It changes the capital requirement and brings heightened supervisory expectations.

Net Worth

Schedule V sets minimum net worth on an ongoing basis:

• a regular provider must have net worth of USD 100,000 on the date of commencement of operations, rising to USD 200,000 by the end of the third financial year from the year of commencement; and
• a significant provider must reach USD 250,000 within ninety days of designation, rising to USD 500,000 by the end of the third financial year from the year of designation.

Net worth is defined to comprise paid-up equity capital, compulsorily convertible preference shares, free reserves, share premium and capital reserves representing surplus on sale of assets, excluding revaluation reserves, and adjusted for accumulated losses, intangible assets and deferred revenue expenditure.

Authorisation and Lifecycle

Application and evaluation. Applications are made under regulation 4 in the specified manner. IFSCA evaluates against the criteria in regulation 8, and grants authorisation under regulation 10 when satisfied that the conditions are met. Where authorisation cannot be granted, IFSCA communicates the deficiencies before refusing.

Fit and proper. Relevant persons must satisfy the fit and proper requirements in Schedule II. The provider must establish systems and controls to ensure this, and carry out evaluations in the prescribed format both at appointment and at reasonably regular intervals thereafter.

Commencement. Operations must begin within six months of authorisation.

Surrender and withdrawal. A provider may apply to surrender its authorisation in the format in Schedule III, with separate requirements depending on whether operations have commenced. IFSCA may act where a provider fails to comply with conditions.

Operating Obligations

The regulations impose a governance and risk framework that will be familiar to regulated payment businesses elsewhere:

• comprehensive and clear documentation of governance arrangements;
• a risk management policy covering the range of risks arising in or borne by the provider;
• a risk-based framework to assess criticality, with planning and due diligence before entering into arrangements, addressing outsourcing risk; and
• identification, documentation and, so far as practically feasible, testing of the matters specified.

Safeguarding of user money. Regulation 23, read with Schedule VI, governs safeguarding of money received from payment service users. This, together with the escrow-service definition, which requires money to be held in an escrow account with an IFSC Banking Unit or as otherwise specified, is the core customer-protection mechanism of the regime.

Points to Settle before Applying

• Classify the activity precisely. The difference between a payment service and a technical service is possession of funds, and it decides whether authorisation is needed.
• Model the designation thresholds. Growth into “significant” status brings a ninety-day capital deadline.
• Plan the safeguarding architecture early, including the IBU relationship for escrow and user funds.
• Check the intra-group exclusion if the proposed flows are between group entities, since the exclusion is conditioned on there being no intermediary intervention by a non-group payment service provider.
• Read the regulations with the wider IFSC rulebook, including AML and KYC obligations (Article 35) and cyber security requirements (Article 36), which apply to authorised providers as regulated entities.

Frequently Asked Questions

1. What are the IFSCA (Payment Services) Regulations, 2024?

They regulate payment service providers operating in or from GIFT IFSC, including authorisation, capital, safeguarding and compliance requirements.

2. Which activities qualify as payment services under IFSCA regulations?

The five services are account issuance, e-money issuance, escrow, cross-border money transfer and merchant acquisition.

3. Is authorisation mandatory for payment service providers in GIFT IFSC?

Yes. Regulation 3 generally requires a certificate of authorisation to provide payment services in or from the IFSC, subject to specified exemptions.

4. What is the minimum net worth for a payment service provider?

Regular providers must initially maintain USD 100,000, while significant providers must reach USD 250,000 within 90 days of designation, subject to the prescribed requirements.

5. What are the safeguarding requirements for payment service providers?

Regulation 23 and Schedule VI govern the safeguarding of money received from payment service users.

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