Dr.

Sandeep Kr Singh,
Assistant Professor,
Dept. of Commerce,
CHRIST Deemed to be University
Email: sandeep.kumar@christuniversity.in
 ‘When a bank provides its services online and customers can make transactions,
submit requests, and handle other banking activities online, it is called digital
banking.’ These banks operate only through internet based platforms. They do not
have any physical branches.

 The existing regulatory architecture in India currently doesn’t allow a fully licensed
digital-only bank.

 Due to this, the digital-only banking model is structured as a partnership between a

licensed bank and a non-bank.

 Commonly referred to as neobanks, such banks have a cloud based infrastructure

rather than an on-premise infrastructure.
Sandeep KS Lecture Notes
 Digital-only Banks in India:

 InstantPay – They delivers banking services to individuals and

businesses.

 Open – It began its journey in 2017, where it offers small

businesses and startups online bank accounts and credit cards
by combining banking, payments, and accounting in a single
form.

 RazorPayX – Introduced by Razorpay, it has served over

10,000 businesses wherein it processes their payroll, pays for
expenses, and pays off the vendors of businesses in real-time.

 ICICI Pockets – India’s first digital bank on a mobile phone.

Sandeep KS Lecture Notes

 ADVANTAGES

Banking at your fingertips

Offers you the ease and convenience of transacting in an environment you feel
most comfortable with. Can check balances and transactions, transfer funds,
open fixed/recurring deposits etc.

Bill payments anytime, anywhere

You can pay bills without having to wait in queues. Choose any bill payment
option, manage billers and even choose quick pay.

Advisory Services
Some digital banks also alert you when you are making excessive purchases.

Sandeep KS Lecture Notes

 DISADVANTAGES

 Technology issues
If there’s a power outage, or if servers go down, you might not have any access to
your account whatsoever.
 Security issues
There’s risk of identity theft, if someone gains unauthorized access to your account
via a hacked or stolen password or log-in credentials.
 No relationship with personal banker
If you’re dealing with an online bank, you have anonymous customer service agents
who are unlikely to know you from the next customer.
 Further Challenges
Its tough to change perceptions about online banking being totally safe. Its tougher
to convince people to adopt technology.

Sandeep KS Lecture Notes

 Virtual banking is a kind of bridge between the services provided at branches and
digital banking. It combines the best aspects of self-service in mobile channels and
direct service.

 The client contacts the bank employee virtually, through video, audio and chat
channels.

 However, there can also be information kiosks, or multi-functionality or transaction

terminals.

 Electronic clearing service, electronic fund transfer, RTGS, computerized

settlement of clearing transactions, centralized fund management schemes, etc.

Sandeep KS Lecture Notes

 Home Banking
Home banking is the practice of conducting banking transactions from home
rather than at branch locations. It generally refers to either banking over the
telephone or on the internet.

Home banking has become nearly synonymous with online banking as most
prefer to bank via the internet instead of over the telephone.

The first experiments with internet banking started in the early 1980s, but it
did not become popular until the mid-1990s when home internet access was
widespread.

Sandeep KS Lecture Notes

 Mobile Banking
Mobile Banking refers to provision and availment of financial services with the help
of mobile telecommunication devices. The scope of offered services includes:

ACCOUNT INFORMATION TRANSACTIONS

Mobile Alerts Fund transfers to linked accounts

Access to card statements
Mutual fund statements
Monitoring term deposits
INVESTMENTS
Portfolio Management Services
Real time Stock
Fund transfers to third parties
Payment of Utility Bills
Check remote deposit
SUPPORT
Status of request for credit
Cheque book/Card requests
Complaint submission/ tracking
ATM Locators

Sandeep KS Lecture Notes

As the government promotes cashless transactions, more people have started paying
with their cards at point of sales terminals and online payment gateways.

Features of debit cards:

A. 16 digit unique code to identify the bank and the customer,
B. CVV as a measure of security for users,
C. Expiry dates mentioning the month and the year in which renewal is needed.
D. Magnetic stripe, the black colour strip at the back of the card.
E. Smart chip in newer debit cards as opposed to the earlier magnetic stripe cards.

A credit card is a payment card issued to users to enable the cardholder to pay
a merchant for goods and services based on the cardholder's promise to the card
issuer to pay them for the amounts plus other agreed charges.

Sandeep KS Lecture Notes

 Merits Demerits
Eliminated the inconvenience that is caused Plastic money cannot completely replace
in carrying cash at all times. cash and thus cannot be used everywhere.

Reduction in thefts and petty crimes such as Ease of payments makes a person unable to
bag snatching. A secure mode of payment. keep a control on their purchases.

It is very easy to make payments and The cards might get damaged due to wear
transfers through plastic money. and tear or mishandling by the holder.

Online retailers provide discounts on making Use of electronic wallets is an advancement

payments through credit and debit cards. over plastic cards.

Eliminates anxiety caused in conversion of There is a certain degree of risk involved as

currency during international transactions. customers share their card details online
during transactions.

Sandeep KS Lecture Notes

Sandeep KS Lecture Notes
 Based on the recommendations of the Nachiket Mor Committee.

 RBI issued guidelines in November 2014 for setting up payment banks in the country.

 Reserve Bank of India gave "in-principle" licences to eleven entities to launch payments
banks.

 Only six payment banks are active now.

 The "in-principle" license was valid for 18 months within which the entities must fulfil the
requirements and they were not allowed to engage in banking activities within the period

 Need for setting up payment banks emerged as more than half of the Indian population still
had no access to banking services. PBs became a catalyst for financial inclusion.

Sandeep KS Lecture Notes

 Features:
 Operate on a smaller scale.
 Minimal to no credit risk.
 They are differentiated and not universal banks.
 Paid up capital of 100 cr.
 Zero balance account, no minimum balance.
 Can accept deposits of only up to 2 lakhs, no term deposits.
 Must invest 75% in G-Securities and 25% in other bank FDs.
 Higher interest rate, compared to commercial banks.
 Can’t undertake lending activities.
 Can issue debit cards but no credit cards.

Sandeep KS Lecture Notes

 Similar to payment banks, these are niche banks aimed at
improving financial inclusion.
 Licenses were given to 10 entities to be set up as SFBs.
 Governed by a multitude of Acts from the banking domain.
 Unlike payment banks, SFBs can lend loans to small businesses
and marginal farmers.

Features:
 Set up as public companies under Companies Act, 2013.
 Must have a minimum paid up capital of at least ₹200 crore.
 75% of its net credits should be in priority sector lending.
 50% loans in its portfolio must be in ₹25 lakh, as the aim is to
reach small borrowers.

Sandeep KS Lecture Notes

 Promoters must have 10 yr experience in the banking and finance
sector.

 Promoters stake must be 40% but brought down to 30% in 10 years

and 26% in 12 years.

 Foreign shareholding allowed upto 74%, but only through approval

route.

 Minimum capital adequacy ratio of 15 per cent as opposed to the 9%

applied to universal banks.

 If networth reaches 500 cr, they have to get listed mandatorily with a
stock exhange.

 If networth is less than 500 crores, even then they can get themselves
listed.

Sandeep KS Lecture Notes

 Can start only as a tie-up with a licensed bank.
 Signing up of a new account by uploading a photograph and
minimum uploads.
 Making easy transfers to linked accounts and third parties.
 Ordering debit cards and credit cards, resetiing PIN through the
app itself.
 Hashtagging expenses to ensure that they are highlighted.
 Sending alerts to consumers about spending habits.
 Uploading documents in bank’s soft locker.
 Managing transactions on behalf of small businesses – vendor
payments as well as employee roll management.

Sandeep KS Lecture Notes

 Financial literacy is lower in rural areas.
 Internet penetration has risen but people are still not well versed.
 Knowledge of many new digital payments platforms is restricted
to the bigger cities.
 Cyber security threats act as a hindrance too as people are scared
to lose their money.
 Cash dominance in transactions, informal credit and savings
exists. People still rely on cash.
 Although RBI has allowed small banks and payment banks in the
recent past, a lot of impediments still remain in the path of
innovative fintech players. It’s like asking them to operate with one
hand tied behind their backs.

Sandeep KS Lecture Notes

 Awareness should be created amongst rural consumers about the
pros of online banking compared to traditional banking.

 Banks should organize training sessions to familiarize people in

rural areas with online banking services.

 Digital literacy must be improved to go for online banking. Vittiya

Saksharta Abhiyan is one example of how GOI actively engaged
students to motivate people to adopt cashless banking.

 Govt. can reward Fintechs who are coming up with sustainable

business models targeting rural areas by providing tax reliefs.

 Increased availability of budget smartphones and cheaper data

plans has been a huge help in the digitalization race. The focus
now should primarily be on awareness, training and infrastructure.
Sandeep KS Lecture Notes
 Digital Banking
 Mobile Banking
 RTGS
 IMPS
 NEFT
 Payment Banks
 Small Finance Banks
 Online Banking in India

Sandeep KS Lecture Notes