💳 Unlocking Payment Service Opportunities in GIFT City: FAQs on IFSCA PS Regulations

🚀 Introduction Why GIFT City is the Next Global Fintech Hub

GIFT City, India’s International Financial Services Centre (IFSC), is rapidly transforming into a global gateway for fintech innovation and cross-border payments. With IFSCA rolling out Payment Services (PS) Regulations, the landscape for launching Payment Service Providers (PSPs) has become clearer, safer, and more business-friendly.

This FAQ-style blog answers common yet crucial questions about these regulations — ideal for fintech startups, NRIs, compliance experts, and global investors looking to enter the GIFT City ecosystem.

Fintech professionals navigate a bustling digital landscape in GIFT City, surrounded by holographic transaction icons and data analytics, illustrating the dynamic world of digital payment innovations and financial regulations

1️⃣ Why were the Payment Services (PS) Regulations introduced?

To:

• Create a structured framework for entities to become Payment Service Providers (PSPs) in IFSC.

• Authorize these PSPs to provide digital payment services to users within and outside GIFT City under a secure and regulated environment.

  
  

2️⃣ What’s the difference between ‘Payment Services’ and ‘Payment Systems’?

• Payment Services = Front-end apps or tools (wallets, POS machines, online banking)

• Payment Systems = Back-end infrastructure (RTGS, NEFT, UPI)

  
  

Think: PSPs are the digital stores; PSOs are the logistics that deliver your money.

3️⃣ How does the PSP Authorisation & Designation process work?

• Step 1: Apply for authorization → Become a Regular PSP (RPSP)

• Step 2: If business size crosses a threshold → Auto-designated as Significant PSP (SPSP)

• No separate application needed to become an SPSP.
  

  4️⃣ Are all payment activities covered under these regulations?

  
  

  No. Only those involving:

  • Transaction accounts (wallets)

  • Payment initiation tools (apps, POS)

  • Payer–payee facilitation (e.g., aggregators)
    

  Excluded: Internal company transfers, technical services, and services by already regulated banks/networks (e.g., Visa, Mastercard).
  

  5️⃣ When should the PSP company be incorporated?
  

  • During application: Company need not exist

  • After In-Principle Approval: Form a company in GIFT IFSC

  • Then apply for Final Authorization
    

  6️⃣ What qualifies as providing payment services “in or from IFSC”?
  

  A company:

  • Has a business presence in IFSC

  • Offers regulated payment services from that base
    

  Must be authorized by IFSCA before launching.
  

  7️⃣ What are “Merchant Acquisition Services” under these regulations?
  

  • Payment Aggregation: Collect payments for merchants via cards, wallets, UPI, etc.

  • Excludes Payment Gateway services (considered technical, not financial services).
    

  8️⃣ Does cross-border money transfer include self-transfers?
  

  Yes. The service covers:

  • IFSC → Outside

  • Outside → IFSC

  • Outside → Outside
    

  Even self-remittances (e.g., own account abroad) are included.
  

  9️⃣ How should PSPs safeguard customer funds?
  

  They must:

  • Hold customer funds securely (e.g., in escrow)

  • Safeguard all funds involved in multi-service transactions until completed
    

  🔟 What qualifies as “Account Issuance Services”?
  

  • Prepaid cards (physical)

  • E-wallets (digital)
    

  As long as the account allows payment initiation, it’s regulated under PS rules.
  

  1️⃣1️⃣ Does topping up an e-wallet count as account issuance?
  

  Only if done by the PSP or its authorized agents. Top-ups by unrelated third parties do not qualify.
  

  1️⃣2️⃣ Can PSP-issued wallets hold crypto or INR?
  

  ❌ No to crypto❌ No to INR✅ Only specified foreign currencies (USD, EUR, GBP, SGD, etc.)
  

  1️⃣3️⃣ What should Indian companies consider under FEMA?
  

  • IFSC-based PSPs are treated as non-residents

  • Indian parent must comply with FEMA provisions on capital remittance, subsidiary setup, and reporting

  • Foreign companies can also apply directly
    

  1️⃣4️⃣ Do PSPs follow AML and KYC norms?
  

  Yes. All PSPs must comply with:

  • IFSCA (AML, CFT & KYC) Guidelines, 2022

  • Monitoring, reporting, and due diligence requirements
    

  1️⃣5️⃣ What’s the purpose of the security deposit?
  

  Used by IFSCA:

  • To cover customer claims or regulatory dues if a PSP fails

  • It’s not a customer guarantee fund, just a regulatory fallback
    

  1️⃣6️⃣ When and how much deposit is required?
  

  IFSCA may require it:

  • Before or during operations

  • Based on business scale, risk, and structure
    

  Amount is dynamic and linked to operational size.
  

  1️⃣7️⃣ Why are third-party service providers (TPSPs) regulated?
  

  Because PSPs often rely on:

  • Tech vendors

  • Payment processors

  • Risk and fraud monitoring tools
    

  Regulations ensure PSPs vet, monitor, and plan for TPSP risks to protect end users.
  

  1️⃣8️⃣ Can PSPs offer loans or credit?
  

  Absolutely not. PSPs must only offer payment services. Lending introduces credit risk, which is regulated separately under banking/NBFC norms.
  

  1️⃣9️⃣ Why is cash withdrawal from e-wallets prohibited?
  

  • To promote digital-only finance in IFSC

  • For compliance, traceability, and fraud prevention

  • Aligns with global best practices
    

  2️⃣0️⃣ Why hasn’t IFSCA capped wallet balances?
  

  Because:

  • Cash withdrawal isn’t allowed, reducing risk

  • PSPs are expected to set user-specific caps using risk-based models
    

  2️⃣1️⃣ What if e-wallets exceed balance limits due to forex fluctuation?
  

  IFSCA will consider:

  • Whether PSP had reasonable safeguards

  • Whether the breach was unavoidable
    

  Reasonable errors may not trigger penalties.
  

  2️⃣2️⃣ Why must PSPs appoint a Nodal Bank?
  

  To:

  • Handle escrow and regulatory payments

  • Maintain transparency and regulatory oversight
    

  They may open additional IFSC bank accounts with justification.
  

  🎯 Conclusion: GIFT City’s PS Regulations Empower Global Payment Innovation
  

  IFSCA’s Payment Services Regulations enable secure, flexible, and regulated payment operations from GIFT City — India’s rising fintech powerhouse. Whether you're launching a PSP, offering e-wallets, or facilitating cross-border money transfers, GIFT IFSC provides the framework you need to succeed.
  

  👉 Need help navigating the process? Reach out to GIFT CFO for seamless incorporation, licensing, compliance, and strategic advisory for your PSP venture in GIFT City.