RBI unveils new lightweight payment system: Why is it needed

Once a cash-based economy, India has evolved as one of the leaders in digital payments. This increased dependence is a double-edged sword. Any disruption to the current infrastructure of digital payments could have significant repercussions for the economy. The Reserve Bank of India (RBI) has devised a solution to deal with such potential issues - the Lightweight Payment and Settlement System (LPSS).

• The deep penetration of smartphones and the internet, coupled with the government's efforts, laid down the foundation for India's digital payment infrastructure.
• The country's e-payment infrastructure is now considered a global benchmark. India is constantly trying to make it better.
• A lightweight system could be what the country needs to complete the picture.

In its annual report for 2022-23, RBI proposed LPSS, an innovative payment system independent of existing technologies. The aim of the new system is to provide uninterrupted financial services even when conventional payment systems like RTGS, NEFT, and UPI fail. RBI has conceptualized LPSS as a lightweight and portable system, which will be active only when needed.

Conventional payment systems like RTGS, NEFT, and UPI are dependent on complex wired networks backed by advanced IT infrastructure. They are meant to handle a large volume of transactions while being sustainable. However, natural calamities and war can potentially disrupt the "underlying information and communication infrastructure" of these systems, rendering them unavailable. That's where LPSS comes in.

LPSS is conceptualized as the opposite of conventional systems. Instead of complex networks, it will have minimal hardware and software. The new system will have almost-zero downtime to keep the liquidity of the economy intact. It will process transactions that are necessary for the economic stability of the country, including "bulk payments, interbank payments, and provision of cash to participant institutions."

LPSS will be the bunker equivalent in payment systems. Its introduction will ensure the continuous functioning of India's economy even when conditions are adverse. It will enhance public confidence in digital payments, said RBI.