The GIFT City Payment Gateway

1. Constitutional and Statutory Foundations

The establishment of the International Financial Services Centres Authority under the International Financial Services Centres Authority Act, 2019 marks a shift from India’s fragmented financial regulatory structure by consolidating powers previously held by the RBI, SEBI, IRDAI and PFRDA into a single unified regulator for the IFSC, as reflected in Section 13 of the Act. This centralized framework aims to build a globally competitive financial ecosystem in GIFT City and attract financial activity that had migrated to offshore jurisdictions. In the payments sector, the Authority derives regulatory competence through Section 34B of the Payment and Settlement Systems Act, 2007 and has operationalized this mandate by constituting the Payments Regulatory Board under the IFSCA (Payments Regulatory Board) Regulations, 2024, which oversees payment systems to ensure innovation, safety and cross-border efficiency, forming the legal basis for the IFSCA (Payment Services) Regulations, 2024 and the dedicated licensing regime for Payment Service Providers.

2. Legal Scope of Regulated Payment Services

The IFSCA (Payment Services) Regulations, 2024, delineate a strictly defined perimeter for regulated activities, categorizing them into five distinct “payment services” under Schedule I, Part A. Any entity seeking to provide these services in or from the IFSC must obtain a Certificate of Authorisation, regardless of whether its customers are located within the IFSC or in external jurisdictions.

· Account Insurance Services

Account issuance services involve the provision and operation of payment accounts, which may manifest as bank accounts, debit cards, or electronic facilities. The regulation encompasses not only the initial issuance of the account but also the ongoing operational support required to enable users to place funds into or withdraw funds from these accounts

· E-money Issuance Services

Electronic money, or e-money, is defined as a monetary value that is denominated in a specified foreign currency, represents a claim on the issuer, and is issued upon receipt of funds for the purpose of executing payment transactions. The GIFT IFSC framework imposes stringent restrictions on the types of value that can be stored in an e-money account. Specifically, e-wallets are prohibited from holding the Indian Rupee (INR) in any form and are further restricted from storing cryptocurrencies or stablecoins. This highlights the IFSC’s primary role as a conduit for offshore foreign currency transactions, distinct from the domestic INR-based fintech market.

· Escrow Services

The provision of escrow services involves a PSP holding funds in trust within an escrow account maintained with an IFSC Banking Unit (IBU) or an IFSC Banking Company (IBC). This service is particularly vital for the IFSC’s role as an international trade and investment hub, as it provides a secure mechanism for cross-border settlements between parties where funds are only released upon the fulfilment of specific contractual milestones.

· Cross-border Money Services

Cross-border money transfer services facilitate the movement of funds between a sender and a recipient where at least one party resides outside the IFSC. The legal definition covers three primary flows:

• Transmission of money from the IFSC to a person outside the IFSC.
• Reception of money from outside the IFSC for a recipient within the zone.
• Facilitating the movement of funds between two parties situated outside the IFSC through the IFSC infrastructure.

This infrastructure positions the GIFT IFSC as a global bridge, enabling the transmission of wealth and corporate funds across jurisdictions with greater efficiency and reduced regulatory friction compared to the mainland Indian remittance framework.

· Merchant Acquisition Services

Merchant acquisition services entail onboarding merchants to accept multiple payment methods and facilitating the subsequent settlement of funds from the customer’s bank to the merchant’s account. This service essentially functions as payment aggregation, where the provider directly handles the flow of funds.

3. Categorization of Service Providers: Regular and Significant

To implement a risk-based and proportional regulatory approach, the Authority distinguishes between Regular Payment Service Providers (RPSPs) and Significant Payment Service Providers (SPSPs). This categorization dictates the level of prudential oversight and capital adequacy required for the entity to remain in good standing.

Regular Payment Service Providers

An RPSP is the default classification for most authorized entities in the IFSC. It provides a flexible entry point for fintech firms to commence operations without immediately being subject to the heightened requirements associated with systemically important providers.

Significant Payment Service Providers

The designation of a provider as “Significant” is not an application-based status but rather a regulatory classification imposed by the Authority once an entity exceeds specific business volume thresholds. These thresholds, defined in Schedule I, Part C, are calculated over a calendar year.

Thresholds for SPSP Designation

• Aggregate Transaction Value: The designation is triggered if the average monthly transaction value processed exceeds USD 2 million for a single payment service or USD 4 million across multiple services.
• E-money Float Thresholds: For e-money issuers, significance is designated if the average daily peak value of issued e-money exceeds USD 3 million.

Once an entity is designated as an SPSP, it must comply with increased net worth standards and higher annual recurring fees, reflecting the increased risk its operations pose to the stability of the IFSC payment ecosystem.

Minimum Net Worth Requirements

The net worth of an entity is defined as the sum of paid-up equity capital, compulsorily convertible preference shares (CCPS), and free reserves, net of any accumulated losses or intangible assets. The requirements are staged to allow for progressive growth within the zone.

Entities must satisfy these requirements on an ongoing basis. Any shortfall in the minimum net worth must be rectified immediately, and the Authority may require the submission of a net worth certificate, certified by a Chartered Accountant or its jurisdictional equivalent, not older than six months.

The Regulatory Fee Framework

The cost of participation in the GIFT IFSC ecosystem is characterized by a series of one-time and recurring fees, all denominated in US Dollars.

In addition to these fees, the Authority retains the power to mandate a security deposit. This deposit serves as a protective buffer for consumer funds and can be utilized by the Authority to settle outstanding user claims if the provider surrenders its license or if the authorization is revoked for non-compliance.

4. The Authorization Lifecycle and Licensing Pathway

The journey to becoming an authorized Payment Service Provider in the GIFT IFSC is a structured, multi-stage process that balances institutional flexibility with rigorous regulatory scrutiny. The Authority views the formal application as the final step in a collaborative engagement process.

• Pre-Application Engagement and Strategy

Prospective applicants are encouraged to engage with the Authority in the “pre-filing” phase. This allows the entity to present its business model, discuss technical architecture, and clarify whether its proposed activities fall within the regulated payment services perimeter or the ancillary services framework.

• Stage I: Formal Application and Parent Entity Scrutiny

The application process allows for a “parent-subsidiary” model. The parent entity, which may be an established financial institution or a fintech group, submits the application to set up a PSP unit in the IFSC. The IFSC company does not need to be incorporated at the time of application. The application must include extensive disclosures regarding the parent’s regulatory history, its financial health over the preceding three years, and the professional background of its founders and senior management.

•  Stage II: In-Principle Approval

Upon successful scrutiny, the Authority issues an “In-principle Approval.” The IPA is a conditional authorization that sets out the requirements the applicant must fulfil before a final license is granted. Common conditions in the IPA include the incorporation of the IFSC company, the infusion of the minimum net worth, and the establishment of physical infrastructure such as office space and communication facilities.

• III: SEZ Unit Approval Committee (UAC) Interaction

Concurrently, the applicant must seek administrative approval from the SEZ Unit Approval Committee (UAC). The UAC evaluates the proposal from an SEZ governance perspective, ensuring the unit complies with zone-wide rules. While the UAC grants a Letter of Approval (LOA) for the unit, this approval is almost universally granted “subject to” obtaining the final Certificate of Authorisation from the IFSCA.

• Stage IV: Grant of Certificate of Authorisation (COA)

Once the applicant demonstrates compliance with all IPA conditions, the Authority issues the Certificate of Authorisation. The COA provides the formal legal right to commence payment services in or from the IFSC. The authorization is perpetual, remaining in force until it is surrendered or revoked.

• Post-Authorization Obligations: The Commencement Clock

Authorized providers are subject to a strict timeline for going live. Operations must commence within six months of receiving the COA. A single extension of up to three months may be granted, provided the entity can prove it has faced unavoidable delays and has a concrete plan to commence operations. If a provider fails to meet this timeline, the Authority may initiate revocation proceedings.

5.  Safeguarding Mechanisms and Nodal Banking

To ensure the safety of user funds, the GIFT IFSC framework employs a sophisticated safeguarding mechanism cantered around the concept of “Applicable Funds.”

Segregation and the Nodal Bank Requirement

PSPs are under a continuous duty to protect funds received from or on behalf of their users. These funds must be segregated from the PSP’s own operational capital. To operationalize this, every PSP must identify an IFSC Banking Unit (IBU) or an IFSC Banking Company (IBC) as its “Nodal Bank”.

The Escrow Structure

All Applicable Funds must be held in an escrow account with the Nodal Bank. The agreement between the PSP and the Nodal Bank must explicitly state that the funds in the escrow account are held for the benefit of the users and can only be used for:

• Executing payment orders.
• Returning funds to the user.
• Paying fees due to the PSP as per the contract.

This structure ensures that in the event of the PSP’s insolvency, the user funds are ring-fenced and protected from the claims of general creditors.

6. Authorised PSPs currently present with publicly verifiable evidence

7. Operational Challenges and Strategic Risks

Despite the favourable regulatory environment, Payment Service Providers in the GIFT IFSC face distinct challenges.

Banking Dependency and Nodal Integration

The mandatory reliance on a “Nodal Bank” creates a critical dependency. PSPs must synchronize their technology stacks with the IBUs of traditional banks, many of which still rely on legacy correspondent banking networks like SWIFT. Any latency in the bank’s settlement cycle (often 36–48 hours) can negate the speed advantages of a fintech-led payment solution.

The Commencement Pressure

The six-month commencement clock from the date of the COA is a significant hurdle. Entrants must navigate the hiring of Key Managerial Personnel, the establishment of physical offices, and the finalization of bank integrations simultaneously. Delays in any one of these areas can result in a regulatory breach before the entity has even processed its first transaction.

Currency and Asset Constraints

The prohibition on the Indian Rupee and stablecoins in e-wallets limits the versatility of the IFSC e-money accounts. While this ensures compliance with India’s capital account convertibility rules, it forces PSPs to focus exclusively on foreign currency-to-foreign currency flows, which are often dominated by large global incumbents.

Capital Compliance

The minimum net worth (USD 100k rising to 200k) is paired with recurring fees and operational requirements for governance, safeguarding, and AML/KYC compliance (via IFSCA AML guidelines referenced in the Regulations).

8. Conclusion and Strategic Outlook

The payment services framework in GIFT IFSC represents a deliberate attempt by the Indian regulatory architecture to create a specialised offshore financial ecosystem that balances innovation with systemic stability. By vesting consolidated regulatory authority in the IFSCA and introducing a structured licensing regime for PSP, the framework seeks to position GIFT IFSC as a credible global hub for cross-border payment infrastructure and fintech experimentation. The clearly demarcated categories of payment services, the risk-based classification of providers into Regular and Significant entities, and the staged capital requirements collectively signal a regulatory philosophy that encourages market entry while maintaining prudential oversight.

The PSP regime in GIFT IFSC is still in its formative stage, with a limited but gradually expanding set of authorised participants. As transaction volumes increase and institutional participation deepens, the effectiveness of the regulatory framework will likely be tested by the need to balance innovation, market competitiveness, and financial stability. For legal practitioners and market participants alike, the evolving PSP landscape underscores the importance of closely monitoring regulatory developments, as the IFSC continues to refine its role within the broader architecture of international financial services and cross-border payments.