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“A Study on Digital Banking and its emerging trends”

SYNOPSIS
Submitted By:
Gaurav Venkatesh Kamath
(172621092)
BBA E-Banking and Finance

Under the guidance of


Ms Urmila M S
(Assistant Professor)

Department of Commerce
Manipal Academy of Higher Education
Manipal, India

January 2019
Introduction:

Finance is the life blood of trade, commerce and industry. Now-a-days, banking sector acts as
the backbone of modern business. Development of any country mainly depends upon its
banking system. The term bank is either derived from old Italian word banca or from a
French word Banque both mean a Bench or money exchange table. In olden days, European
money lenders or money changers used to display (show) coins of different countries in big
heaps (quantity) on benches or tables for the purpose of lending or exchanging. A bank is a
financial institution which deals with deposits and advances and other related services. It
receives money from those who want to save in the form of deposits and it lends money to
those who need it.

When this Banking is brought in a digital or electronic form it becomes Digital Banking.

Digital Banking is the digitization(or moving online) of all the traditional banking activities
and programs that historically were only available to customers when physically inside of a
bank branch. This includes activities like:

 Money deposits, Withdrawals and Transfers


 Checking/Saving Account Management
 Applying for financial Products
 Loan Management
 Bill Pay
 Account services

Consumer preferences have quickly shifted to online and mobile devices, but many financial
organizations have had trouble shifting their onboarding experiences online and to smaller
screens. In addition, until the past few years, banks were not envisioning the tremendous shift
in consumer behaviour that occurred as a result of the millennial generation now become the
largest consumers of financial products. The challenge for banks is now to facilitate demands
that connect vendors with money through channels determined by the consumer. This
dynamic shapes the basis of customer satisfaction, which can be nurtured with Customer
Relationship Management (CRM) software. There is a demand for end-to-end consistency
and for services, optimized on user experience and convenience. The market provides cross
platform front ends, enabling purchase decisions based on available technology such as
smartphones, Desktop or a laptop at home. In order for banks to meet customer demands,
they need to keep focusing on improving digital technology that provides scalability, agility
and efficiency.

Objectives of the study:

 To study the current digital services provided by Indian Banks and to expect the
future of Indian banking system with reference to foreign banks: The facilities
provided by internet banking include, but are not limited to, checking your balance,
sending/receiving money, online payments, locker booking, requesting cheque books,
applying for loans, and upgrading your existing credit/debit card. Banks in India have
witnesses a radical change from ‘conventional banking to convenience banking’. RBI
has been a guiding force for the banks in forming regulations and giving
recommendations to achieve various objectives. Current status in digital space, Indian
government is aggressively promoting digital transactions. Also we will be discussing
how foreign banks have developed over these years and the way the implemented the
technology into banking industry. They have a system called “Banking on the cloud”.

 To study the challenges and opportunities faced by bankers and customers of banks
after digitization in the banking industry: Security remains part of the core services
that banks can offer, and for this reason, the interfaces with simplicity work best.
More customers are acclimatizing to mobile platforms, and more users are using
online platforms at a much younger age. Due to these reasons, there is an undoubted
power that can be leveraged through digital channels. In order to tap into the power of
digitization, however, there are a number of challenges that need to be overcome like
attaining app perfection, technology upgrades, cyber-crime, sustainability etc. Along
with customers even bankers face challenges after digitalization, of all the most
urgent concerns, outdated core IT systems were a significant concern for global
bankers. Failure to invest appropriately in secure, agile systems that can enhance
digital and mobile banking can result in significant loss while compounding the risk
for cyber-attacks. Along with these even cyber attacks are increasingly seen as a top
concern for bankers. Many respondents worried that banks are not currently equipped
to prevent attacks from opportunistic hackers, organized criminals, or government-
funded corporate (IP) espionage. Even banks with strengthened technology systems
are only as strong as their weakest link, rendering them vulnerable to cyberattacks
from a multitude of sources. Considering these challenges we will find out what they
expect the changes to be there in the coming future.

Review of Literature:

“The Impact of Internet Banking on Bank Performance and Risk: The Indian Experience”

By: Pooja Malhotra and Balwinder Singh(2009)

Their research paper describes the current state of Internet Banking in India and discusses its
implications for the Indian Banking Industry. Particularly, it seeks to examine the impact of
internet banking on banks’ performance and risk. Using the information drawn from the
survey of 85 scheduled commercial bank’s websites, during the period of June 2007, the
results show that nearly 57% of Indian commercial banks are providing transactional
Banking services. They also compared the efficiency ratio and probability with non-internet
banks. Internet banks rely more heavily on core deposits for funding than non-internet banks
do. Along with efficiency they also compared significance association with risk profile of the
banks.

“End-user Acceptance of Technology Interface In Transaction Based Environment”

By: Kartikeya Bolar (2014)

This research paper presents creators and investors of technology need information about the
customers’ assessment of their technology interface based on the features and various quality
dimensions to make strategic decisions in improving technology interfaces and compete on
various quality dimensions. The research study identifies the technology interface dimension
as perceived by the end-users in a transaction based environment (viz. Internet banking) in
India, using exploratory factor analysis. The influence of these dimensions on the utility of
technology interface and hence the usage is examined by Structural Equation Modeling. The
moderating role of user demographics and technology comfort is also tested.

So this study suggests that how the technology has been developed in the banking sector and
how customers are able to assess the technology based on the services provided.
“Internet Banking- Benefits and Challenges in an Emerging Economy”

By: Jayshree Chavan (2013)

This study presents new information technology has taken imperative place in the future
expansion of financial services, especially banking sector conversion are affected more than
any other financial provider groups. Increased use of mobile services and use of internet as a
new division channel for banking transactions and international trading requires more
concentration towards e-banking security against deceptive activities. Online banking has a
lot of benefits which add value to customers’ satisfaction in terms of better quality of service
offerings and at the same time enable the banks gain more competitive gain over other
competitors.

It talks about the opportunities faced by customers of banks in terms of service quality and
increased use of electronic devices to save time. Also the challenges like security issues and
deceptive activities like hacking are faced by both banks and its customers.

“The Effect of Using Electronic Banking on Profitability of Bank”

By: Bahram Meihami, Zeinab Varmaghani and Hussein Mehami (2013)

This paper deals with electronic banking is the use of electronic means to transfer funds
directly from one account to another, rather than by check or cash. Through reducing bank
costs, electronic banks can increase bank incomes. In this research the role of electronic
banking (i.e. automated teller machines, bank card, internet bank, telephone bank, point of
sale) in increasing bank incomes is studied.

“Present and Future of Internet Banking in China”

By: Xina Yuan, Hyung Seok Lee and Sang Yong Kim (2010)

First, it illustrates the history and explosive growth of Internet banking services in China. In
general, the development of Internet banking services is still in its nascent stages in China,
with a considerable quantity of potential customer. Secondly, the researcher discusses about
the characteristics of Internet Banking in China. Thirdly, this study discusses the potential
market for internet banking services to China. So to conclude, this study provides suggestions
regarding the expansion of the Chinese Internet banking market.

Research Methodology:

The purpose of this study is to gain insights about Digital Banking and its emerging trends.
So here we will be studying the current status of banking system in India and expect the
future of Indian banks compared to foreign banks. Along with this we will be discussing
about the challenges and opportunities faced by bankers customers of banks after digitization
in the banking industry. The research type is secondary in nature where data has been
collected from various research papers of Fintech Futures, newspaper articles, google images,
websites like (https://m.rbi.org.in,
www.fivedegrees.com,www.avoka.com,,www.enterpriseedges.com, www.yesbank.in,
www.csiweb.com, www.scripted.com, www.capital-banking.com, www.efigence.com,
www.financialbrand.com, www.deloitee.com ), different journals on digital banking by
Henry Stewart Publications and Ingenta Connect Publications.

Scope of the study:

India has around 470 million banking customers. Among this demographic, 60 million of
them, amounting to 13% of the total users, use online banking. With the financial technology
companies, e-commerce names, big data firms, and cloud based software and service, the
digital element is truly revolutionizing things, quite quickly and effectively. And it becomes
even more relevant to take a moment to contemplate where the banking sector figures in the
midst of all these changes. According to a report by the Boston Consulting group in
collaboration with FICCI and the Indian Banks’ Association (IBA), India has around 470
million banking customers. Among this demographic, 60 million of them, amounting to 13
and of the total users use online banking. And within this category, 10% prefer the hybrid
model of regular online and online banking. About 1% of users primarily prefer the online
channels for all their banking needs. In comparison, online banking is the primary channel of
interaction for around 20% of customers in economies like the United Kingdom and the
United States.
According to a report by RBI, Digital Transactions have gained momentum after the 8
November 2016 demonetization of high-value banknotes, as the government actively
promotes cashless transaction to reach its target of 25 billion digital transactions to reach its
target of 25 billion digital transaction in 2017-18. Monthly electronic transaction volumes
crossed the 1 billion mark in July, National Payment Corp. of India(NPCI) said on Friday.
Transactions using unified payments interface alone rose by over 10% to 11.63 million in
July 2017.

So far we have covered on how the digital revolution led to the changes in the banking
system and also how it affected the customers and the bankers. This study helps them to
understand what can be done in the future to avoid limitations.

Suggestions:

Now the banks are providing quiet decent digital services but in the coming years even these
will become obsolete.

 User Friendly Robots in Banks: Powered by AI, banks can deploy chatbots and
robo-advisors that can replicate with near accuracy, several customer interactions
such as account management, transfers, bill payments, fraud alerts and so much more.
Soon enough, as AI gets smarter, due to the multitude of data sets it gets to lean from,
we could also see large improvements in Natural Language Processing(NLP) and
eventually AI that would change banking experiences in ways we couldn’t have
imagine just a few years back. While AI might have started grabbing center-stage
attention in the recent past, its actually been around for a while. A lot of us would
associate AI with superhuman robots that can do things that would blow our minds
away.
 Banking on the cloud: Adoption of cloud in banking will increase, but with the focus
on security and regulatory compliance continuing to be front and center. Expect to see
enterprise-wide middle and bank office applications start to move into the cloud.
Banks and credit union will feel the push to create more cloud enabled business
models in 2019, while the use of open APIs will drive consumer application to the
cloud even more.

 Virtual Reality Banking: Going forward, that day is not too far ahead in the future
where one could simply visit a virtual experience center through a virtual reality (VR)
headset, interact with the digital agent and carry out bank operations.

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