New Delhi: The Reserve Bank of India (RBI) has recently proposed the development of a ‘lightweight payment system’ as a fallback option during extreme and volatile situations. Known as the Lightweight Payment and Settlement System (LPSS), this system aims to function as a payment facilitator when other payment systems like NEFT or UPI become temporarily unavailable due to disruptions in the underlying information and communication infrastructure caused by catastrophic events such as natural disasters or conflicts.
The primary objective of implementing such a system is to ensure preparedness in the face of extreme situations. The RBI envisions the LPSS as a lightweight and portable payment system that operates independently of conventional technologies and can be managed with minimal staff. By having minimal hardware and software requirements, the LPSS is expected to remain operational even during catastrophic events, thus enabling critical transactions that contribute to the stability of the economy, including government and market-related transactions.
The LPSS is designed to minimize downtime in payment and settlement processes, ensuring the continued functioning of essential services such as bulk payments, interbank payments, and cash provided to institutions. Unlike other payment systems like UPI, RTGS, and NEFT, which relied on complex networks and advanced IT infrastructure, the LPSS will feature a leaner infrastructure. Additionally, it will be activated on an as-needed basis, suggesting that it may not be available continuously. Experts note that it remains unclear whether retail users will have access to the LPSS, similar to UPI, RTGS, and NEFT.
Regarding authentication requirements, UPI, NEFT, and RTGS heavily rely on information and communication technology-based infrastructure for authentication and verification. In contrast, the LPSS, with its simplified infrastructure, is likely to employ simplified authentication and verification methods while maintaining records for reconciliation. One potential authentication method could involve password protection, including a master password for access and a service authentication password.
Internationally, various economies are also exploring solutions to facilitate payments in extreme scenarios. The Bahamas, for instance, has introduced a central bank digital currency called the Sand Dollar to disaster-proof payments. This digital currency supports offline functionality during communication disruptions, enabling users to make pre-set value payments that are updated against the network once communication is restored. Similarly, countries such as Canada, the European Union, Ghana, and Uruguay are experimenting with payment solutions that can validate offline transactions in extreme situations.
In summary, the RBI’s proposal for the Lightweight Payment and Settlement System demonstrates the importance of being prepared for extreme and volatile situations. By developing a payment system that operates independently and can be deployed with minimal resources, the RBI aims to ensure the stability of critical transactions and maintain the liquidity pipeline during disruptive events. As other countries also explore disaster-proof payment solutions, the global financial landscape continues to evolve in response to the increasing digitization of transactions and the need for resilience in the face of uncertainties.
