In India, technology implementation poses innumerable issues and options, such as the choice of optimal technology; cost of its implementation; high rate of technological obsolescence and need for periodical updation; advantages and risks of outsourcing; convergence of technologies as well as need for compatibility with the present systems so as to ensure smooth transition.

Payment and Settlement Systems refer to instruments, procedures and rules for transfer of funds among the system participants. The primary goal of any well-structured payment and settlement system is to facilitate a swift and secure settlement of payment obligations between economic agents in the economy by providing a platform for settling payments and enabling monetary transaction. A payment system usually involves agreed technical standards for payment messages and their transaction. It is a set of common operating procedures, rules and an agreed means of providing settlement of the claims which arise among system members. The smooth functioning of the payment and settlement systems is a prerequisite for stability of the financial system. Payment and settlement systems are also important from the point of view of transmission channels of monetary policy. Any malfunctioning of the system can seriously impair the flow of goods and services and financial assets within the economy. It is acknowledged worldwide that a safe, secure, stable and efficient payment system is an enabler of vibrancy in the economic system as its smooth functioning not only ensures efficient utilization of monetary resources but also eliminates systemic risks.

Payment systems, in India, have come a long way from an era of manual operations and paper-based settlements to an environment of computer-enabled processing. Convergence of the traditional banking with the modern Information Technology has changed the entire banking scenario in India. During the transition, systems have encountered various challenges and have been constantly adapting to the rapidly changing scenario. The expansion of electronic payment mechanisms and an increase in the number of players and volume in the financial domain have placed additional responsibility on the central bank that is involved with the organization and management of payment systems to ensure system integrity and systemic robustness. Accordingly, the Reserve Bank of India (RBI) is striving to continually strengthen the institutional framework for the payment and settlement system in India. (Refer Box 1) Various initiatives have been taken to promote extensive use of information technology for improving efficiency, security and the customer services. As a matter of fact, new payment mechanisms designed to aid e-commerce have made technology-embedded payment solutions a prerequisite for efficient operations. Achieving efficiency and security at par with the international standards has been the guiding principle in the development of payment and settlement system in India.

Any economy is characterized by the existence of many payment systems for the smooth and effective functioning of the economy. Among these, the most significant payment systems, called as Systemically Important Payment Systems (SIPS) are those which are capable of triggering disruptions or transmitting shocks across the financial system domestically or even internationally in case of failure.

Professional Banker Magazine, Payment and Settlement Systems, Indian Technology, Monetary Policy, Reserve Bank of India, RBI, Information Technology, E-Commerce, Retail Electronic Payment Systems, Bank for International Settlement, Cheque Truncation System, Electronic Clearing Service, E-Payment.