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RBI’s ‘Lightweight’ Payments System For Emergencies – An Alternative To UPI, NEFT, RTGS

The Reserve Bank of India (RBI) has developed a lightweight and portable payment system to ensure that payment networks continue to function during emergencies such as natural catastrophes or conflicts....

The Reserve Bank of India (RBI) has developed a lightweight and portable payment system to ensure that payment networks continue to function during emergencies such as natural catastrophes or conflicts. This technology is specifically developed to facilitate critical transactions and maintain the economy’s liquidity flow. According to the central bank, the envisioned Light Weight and Portable Payment System (LPSS) will operate autonomously, separate from traditional technology, and may be handled remotely with minimum employees.

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Why In The News?

  • In Its Annual Report For 2022-23 Published On May 30, 2023, RBI Said That The Lightweight And Portable Payment System Is Expected To Operate On Minimalistic Hardware And Software And Would Be Made Active Only On A “Need Basis”.
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Heavy Surge In Digital Payments:

  • During 2022-23, The Payment And Settlement Systems Recorded A Robust Growth Of 57.8 Percent In Terms Of Transaction Volume On Top Of The Expansion Of 63.8 Percent Recorded In The Previous Year.
  • The Share Of Digital Transactions In The Total Volume Of Non-cash Retail Payments Increased To 99.6 Percent During 2022-23, Up From 99.3 Percent In The Previous Year.
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UPI Payments Transfer:

  • UPI Is A Free, Instant, And Real-time Payment System That Is Generally Used To Perform Quick Payments To Merchants And Banks.
  • You Can Do Online UPI Payments Using UPI Apps As Well As Offline UPI Payments Using UPI Lite.
  • UPI Was First Launched In 2016 By The National Payments Corporation Of India (NPCI) And Is Also Known As A Better Version Of The IMPS Payments Facility.
  • While The UPI Payments Service Is Free Of Any Charges For Us Consumers, Banks Do Bear Hundreds Of Crores Of Cost Each Year.
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RTGS Transfer:

  • Real-time Gross Settlement Is A Funds Transfer Process Generally Used To Transfer Higher Amounts.
  • It Is A Safe And Secure Way Of Transferring Money As The Settlement Takes Place In Real Time.
  • An RTGS Transaction Is Free Of Charge When Done Online And Is Initiated, Cleared, And Settled In Real-time, Usually Within 30 Minutes, Making It One Of The Best, Free, And Fastest Ways To Transfer High Amounts Of Funds Instantly.
  • It Does Not Have Any Upper Limits On The Maximum Amount That The Remitter Can Send.
  • Earlier RTGS Transactions Could Not Be Processed 24/7 Or On Public Holidays But Thanks To The Statement Released In 2020 By RBI, RTGS Transactions Can Now Be Done Anytime And Any Day
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IMPS Transfer:

  • IMPS (Immediate Payments Service) Was First Launched By NPCI In 2010 And Is One Of The Most-used Fund Transfer Methods In India.
  • For Doing An IMPS Funds Transfer, You Do Not Need The Beneficiary’s Bank Account Details As A Simple 7-digit MMID Code Is Used To Do An IMPS Transfer.
  • This 7-digit MMID Code Is Allotted By The Bank. After UPI, An IMPS Transaction Would Probably Be The Fastest Way To Transfer Funds Up To 5 Lakhs.
  • An IMPS Funds Transfer Is Better Suited If You Are Looking To Transfer Amounts Up To 5 Lakhs Instantly Or In An Emergency. After UPI, IMPS Is Probably The 2nd Most Economical Way To Transfer Funds.
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NEFT Transfer:

  • NEFT Transfers Or National Electronic Funds Transfers Is An RBI-governed Funds Transfer Method, Available Online And Offline.
  • NEFT Payments Were First Introduced In 2005 And They Are Extremely Safe And Secure Methods Of Transferring Small Amounts Of Money.
  • Even Though NEFT Transfers Do Not Have An Upper Limit, They Are Generally Limited To ₹50K Per Transaction Limit For New Beneficiaries.
  • NEFT Unlike IMPS Does Not Have Fees Or Charges On Online Transfers.
  • However, One Of The Biggest Disadvantages Of NEFT Transfer Is That The Money Does Not Get Credited To The Beneficiary Instantly As An NEFT Transaction Takes Place In Batches.
  • Hence, You Should Probably Avoid Doing NEFT Transfers If You Need To Transfer High-value Funds Instantly.
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‘Lightweight’ Payments System For Emergencies:

  • The RBI Has Conceptualized 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.
  • The Infrastructure For This System Will Be Independent Of The Technologies That Underlie The Existing Systems Of Payments Such As UPI, NEFT, & RTGS. The Central Bank Has Not Offered A Timeline For The Launch Of This Payment System Yet.
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Why Is There A Need For Such Payments System?

  • Such A Lightweight And Portable Payment System Could Ensure Near Zero Downtime Of The Payment And Settlement System In The Country And Keep The Liquidity Pipeline Of The Economy Alive And Intact By Facilitating Uninterrupted Functioning Of Essential Payment Services Like Bulk Payments, Interbank Payments, And Provision Of Cash To Participant Institutions.
  • The System Is Expected To Process Transactions That Are Critical To Ensure The Stability Of The Economy, Including Government And Market Related Transactions. Having Such A Resilient System Is Also Likely To Act As A Bunker Equivalent In Payment Systems And Thereby Enhance Public Confidence In Digital Payments And Financial Market Infrastructure Even During Extreme Conditions.
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How The Lightweight System Be Different From UPI?

  • There Are Multiple Payment Systems Available In The Country For Use By Individuals As Well As Institutions, Each Of Which Has Its Distinct Character And Application.
  • Existing Conventional Payment Systems Such As RTGS, NEFT, And UPI Are Designed To Handle Large Volumes Of Transactions While Ensuring Sustained Availability.
  • As A Result, They Are Dependent On Complex Wired Networks Backed By Advanced IT Infrastructure.
  • However, Catastrophic Events Like Natural Calamities And War Have The Potential To Render These Payment Systems Temporarily Unavailable By Disrupting The Underlying Information And Communication Infrastructure.
  • Therefore, It Is Prudent To Be Prepared To Face Such Extreme And Volatile Situations.
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