The many faces of Digital Banking

Rohini and Athul were visiting Athul’s parents on a Sankranti weekend. As they entered the house, they encountered Athul’s recently-retired father, Raghavan, counting cash that he needed for a quick grocery run. On being nudged to try digital banking in the past, Raghavan has maintained that he is still old school about banking, and comfortable with cash. Athul, on the other hand, actively uses the Internet for investment and banking. Later in the day, Athul and Rohini decided to broach the subject again and started discussing the concept of digital banking with the parents.

For thousands of people like Raghavan, banking has meant a ritualistic trip to the nearest bank to deposit salary or cheque, withdraw cash for monthly household expenses, check balance or update passbook, and return home with cash in the pocket. All of that started to change when banks expanded their service offerings with the advent of the Internet in the late 1990s. Banks adopted technology with computers established for core banking activities such as accessing customer data and processing loans within branches irrespective of the customer’s home branch. Simply put, this centralized banking experience allowed customers to visit any branch and handle their tasks effortlessly. Soon after, this technology moved to the palms of customers through digital devices, ushering in the era of digital banking.

‘Digital Banking’ refers to the use of technology for customer-centric experiences. It can be explained as the digitization of banking where services are moving from a traditional in-person approach to a digital setup. With this transformation, banks are focused on improving operational efficiency and customer service, by removing the need to visit brick-and-mortar for every banking requirement.

The growth in this sector can be attributed to the increase in the number of mobile phone users and banks’ need to cater to a wider audience base. Thanks to its convenience, customers of banks, particularly those from Athul’s generation, took to digital banking services like fish to water.

According to a survey by FIS 2020, 68% of Indians now use digital or mobile banking for their financial needs.. Offering customers a range of advantages, digital banking gained momentum at the turn of the 21st century. Ease of use, 24*7 access to banking facilities, auto payments, paperless banking are the most common benefits of digital banking.

While the term ‘online banking’ is often interchangeably used, it is only a part of digital banking. Online banking only deals with essential transactions; digital banking encompasses all other technology-based banking customers enjoy. When Raghavan uses his bank’s web portal to check for balance, that is an online banking activity. However, if his son Athul uses UPI to pay a vendor on the street, that is a digital banking activity.

Interestingly, digital banking is not restricted to just mobile or desktop banking. Having understood the need of the hour, banks have introduced several products that fall under the realm of digital banking.

• Credit and debit cards – Credit cards are one of the most common forms of digital banking that everyone is privy to. There has been an onward growth of virtual debit and credit cards that can be stored in mobile devices for cardless transactions across different portals in recent times.
• NEFT/RTGS/IMPS – RBI offers NEFT/RTGS/IMPS services for one-to-one payments between bank accounts. While National Electronic Funds Transfer (NEFT) transfers take about half an hour to hit the account, RTGS is used to transfer a large amount immediately. Immediate Payment Service (IMPS), another easy way to transfer money instantly, has an upper limit of ₹20,000 per transaction.
• UPI/BHIM – Bharat Interface for Money (BHIM) app allows users to make easy and quick payment transactions using Unified Payments Interface (UPI). Unified Payment Interface (UPI) such as GooglePay allows users to send money using mobiles. This acts as the platform for all mobile cordless transactions.
• ATMs – ATMs have evolved from being cash withdrawal machines to offering multiple facilities such as cash deposits, paying bills, applying for a personal loan, and mobile phone recharge machines.
• Mobile wallet – A novel concept, mobile wallets allow users to store card details in the smartphone for easy payment to vendors and other customers anywhere.
• APBS and AEPS – Aadhaar Payment Bridge System (APBS) and Aadhaar Enabled Payment System use Aadhaar verification. APBS can be used as an institution for the disbursal of subsidies to many beneficiary accounts. AEPS, on the other hand, allows bank customers to perform various transactions such as balance inquiry, cash deposit or withdrawal, payment transactions, and Aadhaar to Aadhaar fund transfers.

With so many digital offerings, every banking individual has at least one digital touchpoint, if not all. As we progress in the direction of going cashless and digital, what lies ahead in digital banking?

One of the recent innovations in the banking sector is the launch of neo-banks. By leveraging technology and AI, neo-banks offer customers a range of personalized services. Globally, neo-banks have been gaining prominence since 2017 as they take a design thinking approach to simplify product offerings to the end customers. Noted as ‘challenger banks,’ neo-banks challenge traditional banks’ customer engagement, reach, and connectivity. In recent years, several banks have been established as neo-banks offering a range of services that go well beyond the confines of traditional banking. However, despite their many benefits, neo-banks still need to address the basic challenges such as trust and succeed in meeting the need for which they were established.

There is a growing need for virtual banking experiences in today’s time. Driven by technological advancements, the banking sector welcomes new initiatives that help transform the customer experience. Understanding the need of the hour, government think-tank NITI Aayog proposed full-stack digital banks that rely on the Internet and other channels, to offer virtual banking services. These initiatives will certainly aid in helping the industry propel in the direction of digital transformation. But will individuals like Raghavan choose to embrace these new changes? How would traditional banking practices embrace this digital revolution? Only time will tell if these banks can gain customers’ trust and reimagine the banking sector as we know it.