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Digital Banking in India A Review of Tre
Digital Banking in India A Review of Tre
Aarti Sharma
aarti.sharma2089@gmail.com
Assistant Professor – Finance & Accounting Management,
IILM Institute for Higher Education,
3, Lodhi Institutional Area, Lodhi Road
New Delhi – 110003, India
Nidhi Piplani
nidhi.piplani1@gmail.com
Assistant Professor – Economics & Strategy,
IILM Institute for Higher Education,
3, Lodhi Institutional Area, Lodhi Road
New Delhi – 110003, India
Abstract
The banking sector has been the backbone of every economy whether developed or emerging. It plans and implements
the economic reforms. Any change in this sector through the adoption of technology will have an extensive impact on an
economy‟s growth. Nowadays, banks are seeking unconventional ways to provide and differentiate amongst their diverse
services. Both corporate as well as retail customers are no longer willing to queue in banks, or wait on the phone, for the
basic banking services. They require and expect a facility to conduct their banking activities at any time and place. Plastic
money (Credit Cards, Debit Cards and Smart Cards); internet banking including electronic payment services, online
investments, online trading accounts, electronic fund transfer and clearing services, branch networking; telephone
banking; mobile applications and wallet are some of the recent products and services acting as the drivers to the growth
of banking sector. Towards this, the paper aims to examine the recent digital banking trends in India along with
identifying the challenges faced by banks in incorporating these digital banking trends. The study is analytical and based
on secondary data. The concept of digital banking is still evolving in the Indian banking sector and is likely to bring
numerous opportunities as well as unprecedented risks to the fundamental nature of banking in India. Thus, this paper
also aims to present the opportunities and challenges of going digital in the Indian banking sector alongwith some
recommendations to overcome these challenges. The paper concludes that in future, digital banking will not only be
acceptable but the most demanded mode of conducting transactions. It will be useful to the academicians, banking and
insurance personnel, financial advisors, professionals, students and researchers.
Keywords: Digital Banking, Electronic Banking, Internet Banking, Financial Innovation, Technology
1. INTRODUCTION
Digital Banking is a generic term for delivery of banking/ financial services and products through electronic channels,
such as the Automated Teller Machines (ATMs), the telephone, the internet, the social media, the mobile phone, etc. The
banking industry in India is progressively expanding. The liberalization of the economy has created a competitive culture
that has taken the service sector, particularly the banking sector by storm. The banking sector has been the backbone of
every emerging economy. It plans and implements the economic reforms. Any change in this sector through the adoption
of technology will have a sweeping impact on an economy‟s growth. The advancement of information collection,
storage, processing and transmission technologies have impacted all aspects of the banking activity [23].
The post liberalization competitive culture in India has forced all banks realize that in order to remain competitive and
provide the most excellent services to their customers, they need to encompass the most recent technology in place. This
cutting-edge competition, rapid changes in technology and the hectic lifestyles have changed the facade of banking.
Nowadays, banks are seeking unconventional ways to provide and differentiate amongst their diverse services. Both
corporate as well as retail customers are no longer willing to queue in banks, or wait on the phone, for the basic banking
services. They require and expect a facility to conduct their banking activities at any time and place. Irrespective of being
a public sector or private sector bank, almost all of them have given maximum significance to technological development
and deployment. To illustrate, ATMs, plastic money (Credit Cards, Debit Cards and Smart Cards), online collection and
payment services, online investments (Deposits and Mutual Funds), online De-mat and Trading accounts, Electronic
Funds Transfer (ETF) and clearing services, branch networking, telephone banking, mobile applications and wallet, and
internet banking are the outcomes of their initiative towards technological up gradation [6].
According to a survey report on “The new digital tipping point”, the number of customers using online and mobile
channels, to access financial products is increasing every day. Thus, to grow revenues and combat high customer inertia,
banks need to focus on attracting the next generation of customers – which will be largely made up of Generation Y and
the unbanked population. For these customers, a bank‟s digital services will be more central to their decision-making
process than branch location or even brand. Thus, the banks that provide a differentiated digital experience, with advice
and relationship management elements tailored to the individual customer will secure deeper engagement and more
profitable relationships with their customers. The proposed study concentrates on digital technologies that customers use
independently for personal banking without visiting or queuing up in physical banks during the stipulated working hours
and seeking assistance from the Customer Relationship Managers (CRMs) [18].
2. REVIEW OF LITERATURE
The banking sector has chosen a new service channel - the internet, based on the progress of information technology
since the past two decades in order to respond to the changes in customer preferences and needs, increased competition
from non-banks, changes in demographic and social trends, and government deregulations of the financial service sector
[5]. The adoption of new information technology (IT) applications is influenced largely by factors related to overall
organizational attitudes and culture as well technical and infrastructural elements [21].
At present, over 85% of the successful payment transactions are electronic and traditional way of doing banking at the
branch level has relatively little importance to electronic banking users. Many banks, including PSU banks, would have
online ATMs, phone banking, virtual banking, e-banking, Internet banking, etc. by 2020. Indian banking is at the verge
of a paradigm shift and a significant development has been achieved by banks in offering a variety of new and innovative
e-banking services to customers today, which was not thought of before [16]. However, public sector banks have not
been able to harness the benefits of computerization [19].
A research was conducted about the drivers and challenges of online banking; the results of the study show that top bank
managers are in support of a lack of internet specialists and changes in Internet technology being the principle issues
relevant to online banking development whereas IT managers mentioned time and budget constraints and also immature
Internet technology. The study also indicates that according to general and IT managers‟ technical obstacles are the most
important challenge for the development of e-banking. Customers however mentioned internet security, online banking
regulations and customers‟ privacy as the most important future challenges of e-banking in Kuwait [1].
A study concluded that the price of electronic services, increased competition due to new entrants, and trust can be future
challenges for banking systems considering e-banking [8]. Additional research was conducted on ranking the challenges
of e-banking identified for managers of banks; customers‟ privacy, security, and customers‟ trust as issues arising. For
customers; reputation of bank, regulations and laws, and easy accessibility were seen as the main challenges for the
development of e-banking [12].
There was reduction of cost through substantial improvement in efficiency by business organizations. This resulted in
banks diverting their focus towards extensive computerization and electronic operations [15]. The electronic delivery of
banking service has become ideal for banks in meeting customers‟ expectations and building close customer relationship
[26].
A study analyzed that advances in technology are set to change the face of banking business. Technology has transformed
the delivery channels by banks in retail banking. It has also impacted the markets of banks. The study also explored the
challenges that banking industry and its regulator face [2].
It is therefore, no doubt that e–banking will definitely overwhelm traditional banking in the near future; since more
developing nations seem to direct their focus on building up their infrastructure with specific attention on e–banking, e–
commerce and e– learning [11] [15].
3. RESEARCH OBJECTIVES
The paper solely aims to provide a detailed understanding to its readers about the:
Concept of Digital Banking
Evolution of Digital Banking in India
Trends and Innovations in Digital Banking
Opportunities available to banks using Digital Banking channels
Challenges faced by the users of Digital Banking services
4. RESEARCH METHODOLOGY
This study is based on the analysis of the recent trends, opportunities and challenges in banking with the help of
secondary data collection. Thus, the sources of data are Report on Trends and Progress of Banking in India and the
Report on Payment System Indicators published by Reserve Bank of India (RBI), Mumbai for the FY 2016-17. The
digital banking trends studied in this paper are: Automated Teller Machines; Retail Electronic Clearing Services –
Electronic Clearing Services (ECS), National Electronic Funds Transfer (NEFT), Immediate Payment Service (IMPS)
and National Automated Clearing House (NACH); Plastic Money – Credit Cards, Debit Cards; Prepaid Payment
Instruments (PPIs) – Mobile Wallets and PPI Cards; Mobile Banking; Point of Sale (POS); Unified Payments Interface
(UPI) / Bharat Interface for Money (BHIM). Apart from these, the very recent services AAADHAAR Enabled Payment
Systems (AEPS), Bharat Bill Payment System (BBPS) and Bharat Quick Response Code Solution (Bharat QR) will also
be introduced to the readers.
The term “Digital Banking” covers computer and mobile / telephone banking. The system is updated immediately after
every transaction automatically. In other words it is said that it is updated “on-line, real time.” The system is updated
immediately after every transaction automatically. Digital banking is further defined as delivery of banking products and
services to customers through electronic channels. It does not involve any physical exchange of money as all transactions
are done electronically from one account to another through internet. Digital banking includes the systems that enable
financial institution customers, individuals or businesses to access accounts any time and from any part of world and do
so when you have time and not when the bank is open [17].
Digital Banking is also known as Electronic Banking, Cyber Banking, Home Banking, or Virtual Banking and includes
various banking activities that can be conducted from anywhere [9]. A perusal of the concept of e-banking as described
in the literature reveals that the term e-banking, is an upper construct that encompasses an array of banking services
delivered through electronic media, be it through phone, PC, TV or internet. Thus the term E-banking includes RTGS,
NEFT, ECS, Credit cards and debit cards, Cheque truncation, ATM, Tele banking, Internet banking and Mobile banking
[10].
commissioned as a closed user group based network in 1991 with state-of-the-art safety and security, for the use of the
banking sector exclusively. IDRBT commenced its Certification Authority (CA) functions for ensuring the requisite legal
protection for the electronic banking transactions under the Information Technology Act, 2000. Formulation of
Information Systems Audit (IS Audit) guidelines for ensuring such audit in the banks and establishment of National
Financial Switch (NFS) for inter-connectivity of shared ATMs and to facilitate payment settlement across banks. This is
now managed by National Payments Corporation of India (NPCI). Implementation of the Electronic Payment and
Settlement Systems (EPSS), Negotiated Dealing System (NDS), Centralised Funds Management System (CFMS) etc.
[24]. The recent Digital India program was initiated in 2017, with the objective to provide high speed internet, mobile
and bank accounts, inorder to enable participation in digital and financial space at individual level.
Number of ATMs
250000
200000
150000
Number of ATMs (in
100000 actuals) Volume
(Million)
50000
0
2014-15 2015-16 2016-17
FIGURE 1
Source: Authors‟ Compilation using Exhibit 1
ECS Credit is used by an institution for affording credit to a large number of beneficiaries (for instance, employees,
investors etc.) having accounts with bank branches at various locations within the jurisdiction of an ECS Centre by
raising a single debit to the bank account of the user institution. ECS Credit enables payment of amounts towards
distribution of dividend, interest, salary, pension, etc., of the user institution. Figure 2, shows ECS credit transactions
including National Electronic Fund Transactions (NECS) as well.
ECS Debit is used by an institution for raising debits to a large number of accounts (for instance, consumers of utility
services, borrowers, investors in mutual funds etc.) maintained with bank branches at various locations within the
jurisdiction of an ECS Centre for single credit to the bank account of the user institution. ECS Debit is useful for
payment of telephone / electricity / water bills, cess / tax collections, loan instalment repayments, periodic investments in
mutual funds, insurance premium etc., that are periodic or repetitive in nature and payable to the user institution by large
number of customers etc.
200.00
ECS DR Volume
150.00 (Million)
100.00
ECS CR (includes
50.00 NECS) Volume
(Million)
0.00
2014-15 2015-16 2016-17
FIGURE 2
Source: Authors‟ Compilation using Exhibit 1
NACH Transactions
2,500.00
2,000.00
1,500.00 National Automated
1,000.00 Clearing House
(NACH) Volume
500.00 (Million)
0.00
2014-15 2015-16 2016-17
FIGURE 3
Source: Authors‟ Compilation using Exhibit 1
12,000.00
10,000.00
0.00
2014-15 2015-16 2016-17
FIGURE 4
Source: Authors‟ Compilation using Exhibit 1
IMPS Transactions
600.00
500.00
400.00
0.00
2014-15 2015-16 2016-17
FIGURE 5
Source: Authors‟ Compilation using Exhibit 1
NEFT Transactions
1,800.00
1,600.00
1,400.00
1,200.00
1,000.00
800.00 EFT/NEFT Volume
600.00
(Million)
400.00
200.00
0.00
2014-15 2015-16 2016-17
FIGURE 6
Source: Authors‟ Compilation using Exhibit 1
6.7 Prepaid Payment Instruments (PPIs) – Mobile Wallets and PPI Cards
PPIs are payment instruments that facilitate purchase of goods and services, including financial services, remittance
facilities etc. against the value stored on such instruments. PPIs that can be issued in the country are classified under
three categories viz. (i) Closed system: are PPIs issued by an entity, including individuals, proprietorship firms,
partnership firms etc., for facilitating the purchase of goods and services from that entity only. (ii) Semi-closed: are PPIs
which can be used for purchase of goods and services, including financial services at a group of clearly identified
merchant locations/ establishments which have a specific contract with the issuer to accept the payment instruments; and
(iii) Open system: are PPIs which can be used for purchase of goods and services, including financial services like funds
transfer at any card accepting merchant locations (point of sale terminals) and also permit cash withdrawal at ATMs/
business correspondents. While banks and non-banks can issue closed and semi-closed PPIs, only banks are allowed to
issue Open system PPIs. Some of the largest non-bank issuers of PPIs/wallets include Paytm, Mobikwik and ItzCash. As
of March 2017, Paytm had 218 million wallet users, and Rs. 899.11 crore as total balance in wallet. Mobikwik had 55
million wallet users. In September 2016, ItzCash had 110 million registered users. The PPIs have been registering
impressive growth in recent past [7].
FIGURE 7
Source: Authors‟ Compilation using Exhibit 1
6.8 Mobile Banking
It is a banking service using which a customer is able to conduct banking transactions and gather related information
using a mobile phone or a tablet, anytime and anywhere without seeking any assistance from the bank‟s CRM. In the
earlier years of its inception, mobile banking was confined to using Short Message Service (SMS) for availing banking
services. This was also called as SMS Banking [3]. However, with the advent of technological innovations in mobile
devices i.e. the smart phones and tables with WAP enabled the banks to offer a wide variety of banking services to meet
the demands of its customer. All the customers need to do is to download and install the bank‟s mobile application from
their smart phone or tablet‟s application store. The customers can then use these applications with their unique customer
ID/ username and IPIN/Password. Mobile banking to customers is like carrying a virtual bank on their mobile devices.
Customers using a bank‟s mobile application can download mini-statements, get alerts on account activity or passing of
set thresholds, monitor term deposits, access loan statements, card statements and Mutual funds / equity statements,
manage insurance policy, transfer funds between customer‟s linked accounts and third party including bill payments,
check real time stock quotes, get customized alerts and notifications on security prices, check status of requests for credit,
including mortgage approval, insurance coverage, check (cheque) book and card requests and exchange of data messages
and email, including complaint submission and tracking [7].
1,000.00
800.00
600.00
Mobile Banking
400.00
Volume (Million)
200.00
0.00
2014-15 2015-16 2016-17
FIGURE 8
Source: Authors‟ Compilation using Exhibit 1
Apr-17
Aug-17
Feb-17
Jul-17
Sep-17
Dec-16
Mar-17
Jun-17
Oct-17
Jan-17
FIGURE 9
Source: Authors‟ Compilation using Exhibit 1
The internet user base is expected to reach to 120 billion by 2020 with 70% urban consumers already using
7.1 Opportunities
7.2 Challenges
Internet connection and a smart device such as mobile phone, tablet or personal computer is a prerequisite to use
these services.
The digital literacy in India is still very low. According to the Internet and Mobile Association of India Report
(IAMAI), 2016, Approximately 40% population is living below poverty line, illiteracy rate is not more than 25-
30% and digital literacy is almost no-existent among more than 90% of India‟s population [22].
Security of user‟s information has been a matter of concern since the inception of electronic transactions and the
same may hamper their adoption as well.
Difficulty in understanding the usage of the digital banking services. Senior citizens preferring the traditional
banking systems and people who are not tech-savvy are more prone to this difficulty. According to a report on
Encashing on Digital: Financial Services by 2020, 33% of banked population is not using digital banking as they
find it complex to understand and operate [4].
According to the same report, 23% of banked population feel that digital banking services lack transparency in
the form of hidden transaction charges.
8. CONCLUSION
There is no doubt that the Banking Sector in India has become more competitive with the advent of digitization and the
Digital India Program for ensuring better customer service, thereby attaining the goal of a cash-less economy. From the
study it can be concluded that the digital innovations are creating a new picture of banking services all together. The
digitization in banking has started shifting the paradigm of cash and paper based banking to cashless and paperless
banking. However, there is still a long way to cover by encountering the challenges with possible solutions and encashing
the available opportunities.
9. REFERENCES
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1 2 1 2 1 2
1 RTGS 92.78 929,332.89 98.34 96,016.24 107.86 1,253,652.08
1.1 Customer Transactions 88.39 631,050.74 93.95 64,718.26 103.66 849,950.51
1.2 Interbank Transactions 4.38 122,981.62 4.37 10,201.29 4.17 131,953.25
1.3 Interbank Clearing 0.012 175,300.73 0.016 21,096.69 0.018 271,748.31
2 CCIL Operated Systems 3.03 752,000.42 3.12 89,800.06 3.65 1,056,173.36
2.1 CBLO 0.21 167,645.96 0.22 17,332.33 0.22 229,528.33
2.2 Govt. Securities Clearing 1.09 258,916.76 1.02 40,872.50 1.51 404,389.08
2.2.1 Outright 0.98 101,561.62 0.88 21,145.09 1.34 168,741.46
2.2.2 Repo 0.109 157,355.15 0.134 19,727.41 0.17 235,647.62
2.3 Forex Clearing 1.73 325,437.69 1.89 31,595.23 1.93 422,255.95
3 Paper Clearing 1,196.51 85,434.14 1,096.37 6,282.95 1,206.69 80,958.15
3.1 Cheque Truncation System
964.86 66,769.93 958.39 5,716.59 1,111.86 74,035.22
(CTS)
3.2 MICR Clearing 22.43 1,850.40 – – – –
3.2.1 RBI Centres 7.50 614.51 – – – –
3.2.2 Other Centres 14.93 1,235.89 – – – –
3.3 Non-MICR Clearing 209.82 16,939.34 137.98 566.36 94.83 6,922.93
4 Retail Electronic Clearing 1,687.44 65,365.51 3,141.53 9,040.77 4,196.88 132,190.35
4.1 ECS DR 226.01 1,739.78 224.75 2.60 8.76 39.14
4.2 ECS CR (includes NECS) 115.35 2,019.14 39.00 7.49 10.10 144.08
4.3 EFT/NEFT 927.55 59,803.83 1,252.88 8,145.39 1,622.10 120,039.68
4.4 Immediate Payment Service
78.37 581.87 220.81 251.22 506.73 4,111.06
(IMPS)