Innovations in Indian Banking Sector

Piyush Ginotra
Pursuing BA (H) Economics, Shri Ram College of Commerce, University of Delhi

Abstract: Indian banking sector has come a long way right from its inception in the 18th
century. The revolution in the banking sector led to the introduction of Automated Teller
Machines, Debit & Credit cards, NEFT, RTGS, internet banking etc. But the technological
advancements all over the world have created a pressure for the use of better technology
in the banking sector. This paper highlights different innovative products and services
offered by Indian banks. The statistics quoted is taken from secondary sources. Towards the
end, this paper does a critical analysis of the level of acceptance and adoption of these
innovations by the banking customers. For this analysis primary data has been used. This
paper is descriptive in nature and aims to illuminate the knowledge of the readers.

Keywords: Indian Banking Sector, Innovation, Cheque truncation systems, Smartwatch

banking, NFC, Microfinance, Open banking, API, Fintech, Augmented reality, CRM, Cloud
storage.

AT ITS CORE BANKING IS NOT SIMPLY ABOUT PROFIT, BUT ABOUT PERSONAL
RELATIONSHIPS. – Felix Rohatyn

Introduction
The modern banking in India started in the 18th century but it was completely unregulated.
With the establishment of the Reserve Bank of India (RBI) on 1st April 1935 and its
nationalization on 1st January 1949, it emerged as a regulator of the banking system in
India. From its inception the Indian Banking Sector has come a long way from manual to
computerized style of working. With tech revolutions all over the world, the banking sector
in India saw coming in of Automated Teller Machines (ATM’s), Debit & Credit cards, Access
Control Server (ACS), NEFT/RTGS transfer systems, internet banking, message alerts from
banks etc. All these innovations developed the competitive advantage of the banking sector
and forced the players to innovate further.

Currently the Indian banking sector has 27 public sector banks, 21 private sector banks, 49
foreign banks, 56 regional rural banks, 95,946 cooperative banks (www.ibef.org) as of date.
Keeping in mind the potential and the diverse business of banks in India they play a key role
in the development of the economy.

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With Digital India Campaign by the government in the year 2015 the banking sector has
seen a shift in customer’s way of transacting. With customer satisfaction being top most
priority, banking sector has evolved and innovated a lot in order to provide unsurpassed
services at economical prices to its customers. The technological advancements worldwide
have played an important role in innovations in the Indian banking sector. The use of
Artificial Intelligence, big data, internet of things, block chains etc have made banking
sector in India more competitive and customer oriented.

A literature review
Sanchita Sikka and Upadrasta Venkata Srinath studies “Innovations in Banking Products and
Services” and highlighted the fact that banks need to leverage technology to provide
convenient and cost effective services in order to have high customer retention rates. They
concluded that the future growth will be in corporate finance and retail banking with
innovative products backing them.

Madhura Ayachit studied “ICT Innovation in Indian Banking Sector: Trends and Challenges”
with an aim to study the emerging technology in the Indian banking sector and ICT
innovation. She concluded that Indian banks should adopt ICT technology to sail through
the wave of technology.

Sandeep Kaur studied “A Study on New Innovations in Banking Sector” in order to highlight
the new innovations in the banking sector at national and international level banks. She
concluded that in order to survive in the new E- Economy banks need to provide services
over internet and with the latest technology.

Innovative banking products

Cheque truncation System

Truncation is the process to terminate the transfer of physical cheques among banks and in
lieu of that, electronic image of the cheque is transferred to the clearing house. Along with
electronic image the information like MICR band, date of presentation, name of presenting
bank is also given to the clearing house. Cheque Truncation System (CTS) speeds up the
process of clearing, reduces the risk of logistics and reconciliation related problems and
lowers the cost of collection of cheques. CTS system in India was introduced initially in
three major cities namely New Delhi, Chennai and Mumbai w.e.f. February 1, 2008,
September 24, 2011 and April 27, 2013 respectively.

CTS is a customer friendly system as –

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  Prevents loss of instrument in transit
 Allows faster clearance of cheques
 It is less prone to frauds

CTS prescribes certain image specifications, and to ensure that the images of the requisite
quality enter the CTS system a rigorous quality check is done at Clearing House Interface
and Capture Systems (of the presenting banks).

Smartwatch Banking
When we were replacing watches with smart phones, the smart watches kicked in. Just like
mobile applications of banks, smart watches can also be used to access banking products
and services. It can be used to make utility payments, generate mini statements, locate
nearby branches of the bank and many more things. In India smartwatch banking was
introduced in the year 2015 by HDFC bank. Following this other banks like ICICI Bank, SBI,
Yes Bank and Deutsche Bank also came up with this innovative product.

The paper by Infosys “Wearable devices in banking” highlights the challenges associated
with this. The major problem with the smartwatch banking is data theft and virus attacks. It
not only affects the customer using it but also can hamper the entire network of the Bank.
In spite of this, smartwatch banking has the potential to build upon.

Table1 – Different banks and their smartwatch technologies

Bank Smart Watch
HDFC Apple smart watches
ICICI iWear
SBI SBIWear
Yes bank Using Samsung gear 3
Deutsche Bank Meine bank
Data source – www.enterpreneure.com

Contactless payments using NFC

Near Field Communication (NFC) allows making contactless payments by just tapping the
card on the point of sale terminals.

As per Murali Nair – Head CRM, Visa India “Currently the penetration of contactless cards in
India has been pegged at 15 million with Visa carrying bulk space of 10 million cards
issued.”

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In India Master Card and Visa are the two major players of contactless payments cards.
Apart from these cards certain mobile apps such as Apple Pay, Google Pay, Samsung Pay
also use NFC technology for payments.

As per Nair around 900,000 POI’s in India support NFC based card payments. Also smart
phones enabled with NFC payments can be hacked or unauthorized access into the
personal space and financial data can be taken for misuse.

Microfinance
It refers to the process where an under privileged or a low income group person who has
lack of access to financial system is given financial assistance for his financial independence.
The people with non stable employment, lack of credit history or lack of adequate collateral
are mainly targeted under this scheme.

Banks through micro finance not only provides loans, insurance and safety deposits they
also provide basic financial education, business skills and other skills required for financial
independence.

Private banks nowadays are collaborating with various Self Help Groups (SHG’s) to promote
their microfinance business especially in rural areas. For example –

 HDFC Bank’s Sustainable Livelihood Initiative

 Axis bank’s Axis Sahyog

Innovative processes

Open banking and API’s

Open banking is a system that requires the banks to share the financial data and data
related to their customers with their consent, to the third parties using Application
Programming Interface (API). API is a software intermediary which allows to applications to
communicate with each other. The trusted third parties will be having access to this data
and thus use it for providing tailor made services to the customers. A recent survey by
Accenture shows that 70% of the payments executives will use open banking API’s to
generate offers and discounts based on consumer spending patterns.

Banking customers are benefitted through open banking as they can to compare the
services and returns offered by different banks, check their credit score online, facilitate e-
verification of documents, and get tailor made financial products at their door step.

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For the banks, open banking helps in raising the revenue by providing better facilities to
their customers. By using API’s banks can track the consumption patterns and other
relevant financial information of individuals thus enables them to check credibility while
providing credit. Also banks can offer personalised financial products to their customer
which is key to customer satisfaction and retention.

In Indian banking sector open banking was introduced by Yes Bank by digitalising their B2B
supply chain. After this ICICI, Kotak Bank, RBL Bank, DCB Bank and many others came up
with open banking.

Cyber security norms in the banking sector

The use of latest technology has enforced the banks to survive and grow in this competitive
world, but has made them vulnerable to cyber crimes. In order to maintain the cyber
security of banks RBI introduced certain regulations vide Circular
DBS.CO/CSITE/BC.11/33.01.001/2015-16.It accentuates the urgent need to put up a
robust cyber security/resilience framework at banks and to ensure adequate cyber security
preparedness among banks on a continuous basis.

Highlights of this circular-

 Need for board approved cyber security policy which is different from broader IT
policy
 Arrangements for continuous surveillance
 Database security and protection of consumer information
 Cyber crisis management plan (CCMP)
 Cyber security awareness among Stakeholders/Top Management/Board

Apart from the regulations of RBI, banks in India follow certain policies and methodologies
to prevent cyber threats for the bank and for the customers as well. All banks maintains
IPIN (Internet Personal Identification Number) security, timeout of webpage for security of
sessions, use of virtual keyboard, instant message alerts, transaction monitoring, captcha
implementation, mobile number masking and many others to ensure cyber safety of
customers.

Partnership of banks with FinTech companies

FinTech is a combination of two words, Financial and Technology. In general fintech
companies help other companies, business owners and customers to better manage their

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 financial operations, processes and lives by utilising specialized software’s and algorithms.
(www.investopedia.com). Partnership of banks with fintechs will provide banks access to
innovative products, latest technology, use of AI and big data analysis. Banks can further
use this access to decrease their potential risk, increase customer retention, add on new
customers and improve their competitiveness in the market.

Banks have strong customer base and are considered trust worthy in the financial sector,
fintechs on the other hand have latest technologies which they can use to offer better
financial services and customized innovative products. So the partnership among the banks
and fintechs will create a win win situation for both as they can leverage on each other’s
strength.

Table 2- Banks and their fintech partners

Banks Some Fintech partners

Yes Bank NIYO, PaisaBazra.com
RBL Bank Ezetap, Mswipe
Axis Bank Thought Factory (in house innovation
lab)
HDFC Bank Accelerator Engagedment Program-
for fintech partnerships
ICICI Bank FingPay, Arteia
(Sources- www.inc42.com , www.indiaweb2.com www.business-standard.com
www.forbes.com )

Use of Augmented Reality

Infosys in its White Paper defines Augmented Reality as “a computer generated,
programmed environment where a user can feel, sense the details and even can participate
in the actual tasks.” It combines the person’s perception of the real world with the digital
world. AR was initially introduced in the entertainment and gaming sector, but its utility
created its demand in other sectors as well.
Owing to the rising numbers of millennials as customers, banks are bringing up innovative
processes for better customer satisfaction. Use of AR by Indian banks will enable their
customers to access nearby ATM’s, branches, make bill payments, track transactions and due
payments, locate nearby utility centres, search verified properties and many more utilities
which are still to be discovered by the banks in future. In India AR in banking sector is at a
nascent stage but certain banks have already put it to use.
Table 3 – Banks and their AR operations
Axis bank “Near Me” application, used to locate nearby branches &
ATM’s, generate exciting offers to clients when they visit
shopping centres and locate pre-approved property.
Visa Enables the use of AR to locate food outlets, access their

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 menus, pay for the order instantly using AR.
Citibank “Holographic Workstation” allows real time analysis of
financial data using holograms by traders for a better decision
making.

Focus on Customer Relationship Management

Customer Relationship Management (CRM) becomes an integral part of business especially
when the level of competition is increasing. In the Indian banking sector financial innovations
and increasing powers of customers becomes very important to retain customers for long
term and keep them satisfied. Banks in India are using CRM to provide top notch services,
self service options, indentify next best product and execute tailor made marketing.
Table 4 – Banks and their CRM
Yes bank YCCRM(Yes bank collaborative CRM) includes discussion
boards, templates, sharing information with employees to
develop new products.
ICICI bank CRM Business Transformation Map- to focus on five areas i.e.
business focus, organisational structure, technology, business
matrix and marketing.
Punjab Uses CRM software for Prospect Management, Lead
National bank Management, Activity Management, Product Management,
Complaint Management and business intelligence reporting.
Bank of Uses in house software to send updates and variety of reports
Maharashtra about customers to different branches.
Indian banks are also using the technological innovations for CRM, use of digital Chat Box
for customer communication, robotics software, big data analysis and cloud for tracking
customer behaviour and accordingly taking timely steps to retain them.

Use of AI, Block chains, Big data analysis and Cognitive computing
Artificial intelligence is a part of computer science which deals with creating machines,
applications and other innovative products that has the potential to work as a human, with
better efficiency. In Indian banking sector AI is a rapidly growing owing to its benefits for
the banks and for the customers as well. AI in Indian banks was introduced with coming in
of automated chat boxes for the customers.

Accenture Banking Technology Vision 2018 report states that 83% of bankers believe that
AI will work along with humans in the banking sector.
Table 5- Use of robotics in Indian banking sector
ICICI Banks Software Robotics
Canara Bank Mitra and Candi Robots

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 Blockchain, also known as distributed ledger technology will lead to a sea change in the
finance industry. It provides high level of safety, transparency and security.
Big data analysis is a concept which deals with collection, categorization and analysis of
huge data which is beyond the capacity of traditional data collection and analysis
techniques. This concept is used in banking sector to collect data and analyse data about
the customers from sources like log data, transactions, help lines, emails, social media,
external feeds and other sources. This data is rigorously analysed in order to get maximum
benefits out of it.
Cognitive computing is another innovation in banking sector which is used to analyse text
based data, non numeric data and other word based data in order to provide a better big
data analysis experience to the banks. AI, Big data analysis, Block chains and cognitive
computing word together to provide the following benefits to the banking sector-
Fast working Chat box Personalized banking services
Providing next best offer Real time fraud detection
Risk management through deep Automation in back office processing
analysis of customers history
Making branches more digital Anti money laundering

AI comes with the potential to transform the banking sector but it also comes with
challenges in its implementation. The lack of workforce with required data science skills
and lack of good quality and credible data which takes the entire concept of AI for a toss.
Also the use of AI will make the traditional employees in the banking sector as redundant
and thus lead to a rise in unemployment in the sector.

Use of Cloud storage

Cloud computing is a process which relies on shared computing resource rather than having
personal servers and devices to manage applications.(www.webopedia.com). It provides
online services like storage of data, computing and analysis of data.
In banking sector cloud computing is at a nascent stage but has the potential to make
Indian banking sector more competitive owing to the below tabled benefits of it-
Faster services to customers More safety of critical data
Easy recovery of data Ensure confidentiality and integrity of
data

Analysis of primary data

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In order to get further understanding of acceptance and adoption of the innovative banking
products and services, primary data was collected from 68 students and 82 working
individuals.
The key findings of this analysis are presented through the following charts.

Financial innovation Use of E-Wallets by differnt

will lead to Data Theft age groups
Saying Yes and Maybe

60.00% 80.00%

Percentage values
60.00%
40.00% 40.00%
20.00% 20.00%
0.00%
0.00% Students Workings Workings Workings
Below 6 5-25 lakhs Aabove 25 below 30 between 30- above 50
lakhs lakhs 50
Annual Income Cetegory

Giving access of data, Shifting among banks if

purchasing patterns etc to better facilities are
Saying Yes and Maybe

banks for better facilities. provided

Percentage values

60.00% 100.00%
40.00%
20.00% 50.00%
0.00%
Students Students Workings Workings 0.00%
saying Yes saying saying Yes saying Below 30-50 Above Students
Maybe Maaybe 30 50
Category Category

Awareness about NFC Technology

56.00%
Percentage of people saying Yes

55.00%
54.00%
53.00%
52.00%
51.00%
50.00%
49.00%
48.00%
47.00%
students workings
Category

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 Adoption to innovative banking services if
assistnace and guidance is provided
Percentage of people saying Yes &

100.00%
80.00%
60.00%
Maybe

40.00%
20.00%
0.00%
Students Workings below 30 Workings between 30- Workings above 50
50
Category

Conclusion
The tech revolutions taking place throughout the world and increasing competition among
the players led to the transformation of the Indian banking sector. Many private sector as
well as public sector banks have already adopted the technological innovations in their
business practise. The Indian banking sector has evolved but the customers of the banking
services have still not completely adopted the new way of banking. With passage of time
the awareness among the banking customers will improve which will lead to better
adoption of new style of banking. The future of the Indian banking sector seems bright with
more and more people getting benefits of the innovations in sector.

References
www.ibef.org www.rbi.org www.bankbazar.com www.businessworld.in
www.mulesoft.com www.thehindubusinessline.com www.indiastak.org

www.investopedia.com www.analyticsindiamag.com www.techopedia.com

www.analyticstraining.com www.livemint.com www.stoodnt.com

www.forbes.com www.gomedici.com www.wowso.me us.hitachi-solutions.com

www.bankingfinance.in

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Electronic copy available at: https://ssrn.com/abstract=3438918