Another Indian payments idea: a lightweight portable payments system for catastrophes

India is so far ahead of most of the world when it comes to payments technology that when a new Indian payments idea emerges, we should probably pay attention.

In its recent annual report, the Reserve Bank of India, the country's central bank, put forward the idea of a super-resilient back-up payments rail, which it calls the Lightweight Payment and Settlement System (LPSS). If a war or natural disaster cripples core payments infrastructure such as India's real-time gross settlement system, then the LPSS would kick in to process essential payments. The LPSS would be "independent of conventional technologies," portable, and capable of being operated "anywhere by a bare minimum staff."

Here is the full description:

Source: RBI

In my admittedly not-very-technical head, what I'm imagining is some sort of truck filled with computers and other apparatus for processing payments, sort of like a mobile police command vehicle. I could imagine a fleet of them. And there would be multiple way for these mobile payments bunkers to communicate with commercial banks, some of which wouldn't rely on the internet, like... ham radio? Transactions recorded on DVD and delivered by hand? (Yes, apparently that's a real thing). Dunno. I'm sure others will have a better idea how the LPSS works.

Central banks already plan for disasters by creating layers of payments redundancy, specifically back-up data centres in fixed locations.

In the U.S., for instance, the key Fedwire system is hosted at the Fed's East Rutherford Operations Center in New Jersey. Should disaster strike at the East Rutherford hub, a secondary back up data center at the Federal Reserve Bank of Richmond is designed to resume Fedwire operationality 60-90 minutes later. A third backup center exists at the Federal Reserve Bank of Dallas. (The source for this is here.)

As for Canada, our new Lynx high-value payments system is hosted at a primary site (I don't know where) with a secondary site ready to turn on as a back-up, as explained in this document. If both sites go down, then the system moves to good ol' fashioned manual processing.

I assume that India currently uses the same fixed primary/secondary site strategy as Canada and the U.S.

Ultimately, every single digital payment gets settled via transfers of central bank deposits over core payments infrastructure. So ensuring that these systems are available is crucial. No central bank wants to fall victim to something like the infamous 2014 breakdown of CHAPS, the UK's wholesale payments system, which prevented people from making crucial payments for ten hours.

Ages ago, some of us suggested that blockchain-based systems might provide a suitable layer of redundancy. If key centralized infrastructure like India's RTGS, U.S.'s Fedwire, or Canada's Lynx were to stop working thanks to a disaster, a central bank could temporarily fail-over to a decentralized option until the primary system is restored. This model has never been tried out. Perhaps in a world with ever-increasing natural disasters and renewed geo-political tensions, an LPSS, some sort of truck-full-of-payments-processing-machinery, is the best solution for central banks.