RBI’s ‘Lightweight’ Payments System

Context:

The Reserve Bank of India (RBI) has conceptualised a lightweight payment and settlements system, which it is calling a “bunker” equivalent of digital payments, which can be operated from anywhere by a bare minimum staff in exigencies such as natural calamities or war.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

1. Details
2. Reasons for the Need of a Lightweight Payments System
3. Differences between the Lightweight System and UPI

Details:

• The infrastructure for this system will be independent of the technologies that underlie the existing systems of payments such as UPI, NEFT, and RTGS.
• The central bank has not offered a timeline for the launch of this payments system yet.

Reasons for the Need of a Lightweight Payments System:

Minimalistic Hardware and Software:

• The lightweight payments system is designed to operate on minimalistic hardware and software, reducing the infrastructure and operational costs.
• This enables easy implementation and accessibility, especially in areas with limited technological resources.

Near Zero Downtime:

• The lightweight system aims to ensure near-zero downtime of the payment and settlement system in the country.
• By minimizing disruptions, it maintains the liquidity pipeline of the economy and enables uninterrupted functioning of essential payment services such as bulk payments, interbank payments, and cash provision to participant institutions.

Stability of the Economy:

• The system is expected to process critical transactions that contribute to the stability of the economy, including government and market-related transactions.
• By providing a reliable and efficient platform for these transactions, the lightweight system supports the smooth functioning of economic activities.

Resilience and Confidence:

• Implementing a resilient payment system enhances public confidence in digital payments and financial market infrastructure, even during extreme conditions.
• The lightweight system acts as a “bunker equivalent” for payment systems, ensuring their continued operation and bolstering public trust in the reliability and security of digital payments.

Differences between the Lightweight System and UPI:

Purpose and Design:

• The lightweight system is designed to provide uninterrupted functioning of essential payment services, particularly in extreme and volatile situations, such as natural calamities or war.
• UPI (Unified Payments Interface) is a popular payment system in India that facilitates peer-to-peer and peer-to-merchant transactions in a fast and convenient manner.

Handling of Transactions:

• Existing conventional payment systems like UPI, RTGS (Real-Time Gross Settlement), and NEFT (National Electronic Funds Transfer) are designed to handle large volumes of transactions and ensure sustained availability.
• The lightweight system, on the other hand, focuses on critical transactions necessary for the stability of the economy, including government and market-related transactions.

Infrastructure:

• UPI and other conventional payment systems rely on complex wired networks and advanced IT infrastructure for their operations.
• In contrast, the lightweight system is expected to operate on minimalistic hardware and software, reducing the dependency on sophisticated infrastructure and making it more portable and accessible.

Resilience:

• The primary objective of the lightweight system is to ensure the resilience and availability of payment services, even during extreme and disruptive events.
• While UPI and other existing systems strive for continuous availability, they may be temporarily affected during

-Source: Indian Express