Today, digitalization is a buzzing word.

Digitalization refers to enhancing processes by using digital

technologies and digitized data.

It has transformed how businesses interact with their customers.

Many businesses have realized the importance of digitalization to improve their efficiency and
productivity and are hence moving towards digital transformation rapidly.

Digitalisation VS. Digitisation

Often the terms digitalisation and digitisation are used interchangeably. However, there is a difference
between these two terms.

Digitisation is the process of transforming information or data from a physical format to digital format. It
refers to optimization of processes such as work automation, paper minimization.

Digitalisation on the other hand is a strategy that goes beyond the implementation of technology to
change the entire business model and the evolution of work.

Digitalisation

It helps to create revenue, improve business and create a digital culture where digital information is at
the core.

It enables processes to be more efficient, productive and profitable.

Example:

Uploading a PDF document from a computer's hard drive to the cloud and sharing it with many people
to analyse the data.

Converting an Excel spreadsheet to a Google Sheet stored in the cloud.

Digitisation

It enables to create business value, which needs data.

It helps to lay the foundation for business cases that leverage data.

Example:

Scanning a paper document and saving it on computer's hard drive as a digital document, like PDF.

Going from notes on paper to typing them up in an Excel spreadsheet.

Need for Digitalisation in Banking Sector

Banking is an inevitable part of our lives. For many, day will not end without at least a single financial
transaction. So, enhancing customer experience is of prime importance to banks and digitalisation is the
best way to do so. Indian Government is aggressively promoting digital transactions.

The launch of United Payments Interface (UPI) and Bharat Interface for Money (BHIM) by National
Payments Corporation of India (NPCI) are significant steps for innovation in the Payment Systems
domain.

Introduction to Digitalisation

Welcome to 'Introduction to Digitalisation' topic.

This topic covers:

The Concept of Digitalisation

The Concept of Digitisation

The Difference Between Digitalisation and Digitisation

Advantages of Digitisation in Banking Sector

Current Scenario of Digital Banking

What is Digitalisation?

Today, digitalization is a buzzing word. Digitalization refers to enhancing processes by using digital
technologies and digitized data.

It has transformed how businesses interact with their customers.

Many businesses have realized the importance of digitalization to improve their efficiency and
productivity and are hence moving towards digital transformation rapidly.

Digitalisation VS. Digitisation

Often the terms digitalisation and digitisation are used interchangeably. However, there is a difference
between these two terms.

Digitisation is the process of transforming information or data from a physical format to digital format. It
refers to optimization of processes such as work automation, paper minimization.

Digitalisation on the other hand is a strategy that goes beyond the implementation of technology to
change the entire business model and the evolution of work.
DigitalisationDigitisation

Tap the tabs to switch screens

It enables to create business value, which needs data.

It helps to lay the foundation for business cases that leverage data.

Example:

Scanning a paper document and saving it on computer's hard drive as a digital document, like PDF.

Going from notes on paper to typing them up in an Excel spreadsheet.

Need for Digitalisation in Banking Sector

Banking is an inevitable part of our lives. For many, day will not end without at least a single financial
transaction. So, enhancing customer experience is of prime importance to banks and digitalisation is the
best way to do so. Indian Government is aggressively promoting digital transactions.

The launch of United Payments Interface (UPI) and Bharat Interface for Money (BHIM) by National
Payments Corporation of India (NPCI) are significant steps for innovation in the Payment Systems
domain.

Need for Digitalisation in Banking Sector

Digitalisation is of prime importance in the banking because:

1

It helps to gain online trustworthiness

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Today, everything is online. Social media and online content play a crucial role in attracting customers as
customers look for a strong online presence to trust any institution. So, using digitalisation can help
banks to gain their customers trust.

It helps to acquire new customers

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Banks require customers as much as the customers require banks. A cheaper and easier way to influence
and acquire new customers is through the internet. It serves as a platform to directly reach out to the
potential customers.

It helps to offer a personalized experience

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Digital transformation has enabled the financial institutions to formulate various services as per the
customers’ requirements. With new innovative developments, banks can strengthen customer
engagement by offering them a personalised experience.
Example: Using Chatbots on bank websites to connect directly with the customers.

It helps to stay innovative and adaptive

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Sophisticated digital technologies have transformed the traditional way of banking. Digitalisation has
made it possible for the banks to cater to the demands of the new age customers. The emergence of
shopping portals and other integrated apps have made it possible to reach out to the customers.

It helps to increase efficiency in process

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By implementing technologies such as electronic signatures or creating banking apps for smartphones,
banks aim to improve the efficiency of their manual processes.

It helps in cost reduction

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Digitalisation has enabled banks to save costs for both institutions and customers, through the use of
newer payment methods and cashless transactions.
Digital Transformation in Banking

Banking has been radically transformed by digital technologies in ways that have greatly benefited many
consumers.

ATMs, debit and credit cards and now various banking apps have set an example of how digital
transformation has helped the banking sector over the years.

Not so long ago, the majority of transactions were handled in person by bank tellers.

Automated teller machines (ATMs) came along and streamlined the basic transaction process, extending
business hours and reducing wait times and dependencies on human employees for cash withdrawals
and other popular transactions.

Over time, ATM technology has evolved to accommodate cash and check deposits, more secure
transactions, and support for multiple accounts, including credit cards and mortgages.

In recent times, PCs and mobile devices have given way to online and mobile banking, and cashless
payment systems.

Customers can now carry out their banking transactions via the web, including paying bills and sending
funds directly to friends and family.

Mobile banking apps let users take snapshots of paper checks to make remote deposits, and a new wave
of payment systems, including PayPal and Apple Pay, let consumers pay for everyday purchases with
accounts linked directly to their phones, no cash or plastic card required.

In the recent times, the use of Prepaid payment instruments (PPIs) for buying products & services and
transferring funds has increased considerably.

Transactions through PPI Cards include:

Mobile prepaid instruments

Gift cards

Foreign travel cards

Corporate cards and

Mobile wallets

Another example of digitalisation in banking is that it has reduced the gap between the rural and urban
areas. With facilities like E-banking, one can easily send or receive money from one account to other
account of any bank branch from any place and at any time.

Modes such as:

USSD (Unstructured Supplementary Service Data)

E-Wallets

UPI

Paytm and other banking applications have made this possible.

Advantages of Digitalisation in Banking

Digital banking lately is not just confined towards using the web to access the banking services, as is
typically perceived, however, it likewise incorporates of a whole exhibit of banking services delivered or
consumed using technology.  A few advantages of digitalization within the banking sector are:
Provides Efficient Customer Service

Saves Time

Facilitates Online Bill Payment

Enables Easy and Convenient Transfers

Acts as a Written Record

Provides Efficient Customer Service

Today, customers do not have wait and stand in long queues to carry out banking transactions. Online
banking services have enabled customers to carry out their transactions 24*7 from the comfort of their
home or offices or even while travelling.

Saves Time

Earlier banks had boards put up at their branches specifying the time required for different services.
Even cashing or depositing a cheque took a long time.

But digital banking has made it so easy for the customers that there are absolutely no time constrains
anymore.

Facilitates Online Bill Payment

Today, with digital banking, customers do not have to carry cash and queue up to pay their utility or
other bills.

With online bill payment, it’s easy to manage your accounts from one central source and to trace
payments into and out of your account.

Enables Easy and Convenient Transfers

Digitalisation has helped to minimize the danger of human error as the utilization of physical cash has
become less.

Moreover, services like NEFT (National Electronic Fund Transfer), RTGS, etc. have also made it easy to
transfer the amount from one bank to another very conveniently and quickly.

Acts as a Written Record

Thanks to digitalisation, we can now track the data of all our transactions by using online applications.

All the records can be maintained in the app so that the banks can make use of digital analytics to form
sound data-driven decisions.

What is the current scenario of digital banking?

The Indian government is increasingly supporting digital transactions. Innovation and popularity of
digital payments have resulted in greater digital banking transactions.

United Payments Interface (UPI) and Bharat Interface for Money (BHIM) launched by the government
was an important milestone not just for the banking system but the entire country.

Implementation of electronic payment system such as NEFT, ECS, RTGS, Mobile banking, Debit cards,
Credit Cards has become very common with every Indian bank.

Artificial intelligence has acted as the backbone in the E-Banking and has helped to come up with
transformations.

Better performance, higher profitability, and risk reduction are the three main goals which banking and
financial sectors are trying to achieve at the moment to keep up with the competition in the world.

Indian banks are coming up with innovative variants of these products and show the newest features
added to these products to attract more customers.
All this has not just benefitted the banks by generating more revenue but has also made our lives better
by making banking easy for us during the pandemic.

In the post-COVID world, customers will need to feel unique and cared for even when they interact with
banks over digital channels. Digital Banking experience has been a game changer for enhancing
customer satisfaction post-COVID.

Aim of Digitalization
The aim of digitalization in banking is to enable customers to access banking services without
the need to visit the bank in person. Customers can access these services with a click on their
laptops or a tap on their phones. These services can include money transfer, paying utility bills,
applying for credit cards and recharging mobile and data cards.

Process of Digitalization
The following steps are involved when a customer wants to sign up or access digital  banking
services.
A customer signs up for services.
A customer usually signs up for banking services through a mobile app or the bank's website. A
service request is generated in the banking software to enable the customer to access banking
services through the mobile app or the bank's website.
Banks produce valid credentials:
The service request generated in the banking software needs to be acknowledged by the bank.
Sometimes the bank requires valid KYC from its customers for this. Once the KYC is validated
and the service request is accepted, the bank generates valid credentials for new users or valid
access authorization to existing customers.  For new customers, the credentials are sent via
email, posts or SMS. The customers are expected to keep these credentials secret and not
share them with anyone.
Banks generate a bouquet of services:
When the customer signs up with the valid credentials, the bank gives access to a bouquet of
services. The customer can access the services and enjoy the benefits using their mobile apps
or the bank’s website.
Optimizing the workflow
Although there were online services, customers had to still visit the bank or someone from the
bank had to visit the customers to collect document needed to initiate the process. These
documents then had to move around different departments for the verification purposes. Now
customers simply need to upload their documents on a cloud-based server using their
credentials. The data is then made accessible to the different departments.
Enabling E-Signatures
Earlier e-signatures were not mandated because customers were willing to come to the bank
in-person or  someone from the bank would visit the customers to get their signatures. Now
with the new normal, e-signatures have become very common. Also, banks are  adopting new
technologies to capture remotely the signature of a customer on a physical document using
physical ink pen.
Capturing customer insights
To retain customers and enhance customer experience, banks need  to capture customer data
to derive insights from it. With more and more people preferring to stay indoors, banks can
now need to gather useful insights by mining data from customer’s social media profiles, their
spending habits and other online surveys.
Enabling real time customer interaction
Banks used personalized interaction to engage customers. However, such interactions were
confined to phone banking only. Now banks are moving towards providing video chats where
customers can talk with bank representative face to face using video calls. Banks need to
provide these calls 24/7 for mobile and internet banking. More and more banks are also
introducing artificial intelligence (AI)- enabled chatbots to carry out compelling conversations
with the customers on their behalf.
Offering omnichannel experience
With more and more customers preferring to engage online, they expect uniform experience
across all channels of interaction.  The focus of the banks should be to provide the same set of
services or operations and experiences to the customers irrespective of whether they are
accessing through their mobile apps or the website. For example, a customer who begins an
onboarding process from a mobile app  should be able to complete it from a laptop  without
providing similar information all over again.
Preventing Fraud
With contactless banking  being the new normal, there is a significant push for  preventing
fraud from the bank’s end. While technology acts as an enabler, it can also be used by hackers
and scamsters to fraud customers. Banks need to aggressively plug all loopholes in their
systems to minimize fraudulent activities. If there is a breach in security, then customers need
to be informed timely so that they can also take actions from their end.
The Role of Regulation in Banking Digitalisation
Banking digitalisation has made banking processes more convenient and accessible 24 hours a
day. However, it has also given rise to many risks and issues.
Banks now face a crucial responsibility of protecting customers’ data. So, while the role of
regulations and legal framework governing banking processes is vital, it assumes greater
importance for digital banking processes.
To protect consumers from online banking frauds and data breach, the Reserve Bank of India
(RBI) has introduced a few significant reforms.
RBI Guidelines
To ensure the protection of customer’s privacy, the RBI has set up certain guidelines for
regulating the following:
1. Internet Banking
2. Mobile Payments
3. Card Payments
RBI Guidelines
Internet Banking

The regulation of Internet banking is performed through Regulated entities (RE) . They are
the government units that supervise the working of industries, professions and businesses.
The RBI has formulated the following instructions for the REs that supervise the Internet
Banking facilities offered by banks to their customers.

The REs must ensure that cookies are removed once the customer has logged out of the
internet banking site and prevent malicious attacks on DNS.

RBI Guidelines

Internet Banking

The REs must ensure that if an online session is inactive for a certain period of time, the session must
be terminated.

The REs must ensure that in case internet banking is accessed through external websites, there must
be a uniformity in the appearance and procedure for authentication.

RBI Guidelines

Mobile Payments

The following instructions are applicable to the Regulated Entities (REs) that offer mobile banking or
payment facility to their customers through mobile applications.

The REs must verify the version of mobile application before the customers initiate any banking
transactions.
The REs must ensure secure download or installation of applications, store customer data maintain
single version of the mobile application, minimum data collection, identify remote access applications.

RBI Guidelines

Mobile Payments

The REs must confirm if the mobile apps or operating system are secured.

The REs must ensure that the mobile apps do not retain any personal information or IDs and
passwords on the device.

The REs must explore the feasibility to implement a code that checks whether a device is rooted or
jailbroken prior to the installation of the mobile application.

The REs must ensure that anti-malware capabilities are built into the mobile applications.

RBI Guidelines

Card Payments

The following instructions are formulated for the REs that offer to supervise (credit/ debit/ prepaid)
(physical or virtual) issued by banks to their customers:

The REs must follow the standards set by Payment Card Industry (PCI) for securing the payments
made by cards.

The REs must ensure strong surveillance or monitoring of card transactions (especially overseas cash
withdrawals) and setting up of rules and limits matching with customers’ risk limits.

RBI Guidelines

Card Payments

REs must set up control mechanisms with necessary restrictions on transactions, in case any set limits
are exceeded.

REs must ensure a secured processing of card details to avoid data leakage of sensitive customer
information.

The REs must Implement security measures such as enabling BIOS password, disabling USB ports,
disabling auto-run facility and other software, implement anti-skimming and whitelisting solution and
upgrade all ATMs with supported OS versions.
Security Measures in Digital Banking

As more and more customers use digital banking due to its convenient and quicker
accessibility, the need for security measures has become paramount for the banks. Many
customers feel that it is not safe to transact online because they are prone to frauds and
hackers can easily access their information.
To prevent hackers from breaking into the systems and to stop fraudulent transactions, banks
have now introduced security features. These features are designed to prevent any possible
online scams, and boost customer confidence when transacting online.
Login Details
Bank websites use login procedures as a first level of security measure to prevent unauthorized
access to customer accounts. The banks ask customers to create alphanumeric passwords with
special characters. These passwords need to be of an optimum length. The banks also suggest
alphanumeric strings to customers from which they can choose. Such measures help create
strong passwords that are difficult for hackers to breach.

Encrypted Data
Banks use encrypted data to make sure that the financial security of the customers is not
compromised. This encrypted data enables information to travel across the network in such a
way that it is read and understood by the bank and the customers only. No one else has access
to the encrypted data.  The algorithm used for encrypting and decrypting data is very strong
and complicated. This makes it difficult for hackers to breach the encryption.
Serious Account Management
A customer’s account is seriously managed in a way where a hacker finds it difficult to login and
transfer money or generate a new debit card. When a customer wants to add a new beneficiary
or payee, the banks make sure to have additional checks to avoid any hacker to log into a
customer’s account. Banks also ensure to get a confirmation from a customer to validate if a
password or an address has been changed by them.

Logout
Banks have come up with security systems that allows a customer to login only from one device
at a time. The window or app once logged out is locked instantly and the browser’s back button
is disabled. The customers therefore need to provide login details each time they return to the
page they left with the previous login.
Two – Factor Authorization
Two- factor authorization is a two-layer authorization that helps to identify genuine account
holders. To enable this, the bank requires the customer to gain access by asking for additional
information other than the username and password. For example, when the customers log in
using the password and username, they can be asked to answer a secret question, provide a
single-use OTP number, type in a specific keystroke or provide biometric information such as
iris scan, fingerprint, and so on.

Most of the banks use the common security features to protect their customers and their
online transactions. However few banks make efforts to introduce advanced features to
improve security. These features include IPIN security, Session timeout, Digital certificate,
Virtual keyboard, Insta alert and so on.

IPIN Security

IPIN is randomly generated by the system for each user and gets printed on tamper proof
media. It is then sent to the user. IPIN is encrypted in such a way that even the system
administrator cannot access it. The users can change the IPIN with the help of their registered
phone number, ATM, Net banking and Phone banking.

Session Timeout

When a user’s online webpage remains inactive for some time, the system logs off the user
automatically to prevent misuse. The user must log in once again to access the webpage.

Digital Certificate

The webpage of the banks' server is identified by a digital certificate. This ensures that, the
customers are protected by data encryption. When a bank’s website is protected by digital
certificates, the users see a padlock next to the navigation bar. This indicates that the users are
visiting a safe and trusted website. Digital certificates prevent customers from revealing
confidential information to fraudulent websites.

Virtual Keyboard

Some bank websites provide a virtual keyboard for the benefit of the customers. The customers
can enter passwords with the help of a virtual keyboard while logging into a bank’s website.
This protects the customers' credentials from being compromised by any keylogger software
installed on shared or untrusted computers. For example, a customer who logs in from a
cybercafé can use a virtual keyboard to ensure security of credentials.

Insta- Alert

When a customer registers into a banking website, 'Insta-alert' service sends instant SMS or
email for transactions, with their denominations, carried out by the customer. This service also
alerts customers when they add beneficiaries for carrying out third party transfer transactions.

Security Solution

Some banks have servers protected with firewalls. They also have installed systems like
intrusion prevention systems and anti-malware systems to monitor and prevent any malicious
activity.
Extended Validation Secure Sockets Layer (EV SSL) Certificate

This feature provides enhanced security by providing clear visual indicators. The customer can
identify a genuine website based on the color of the address bar. If the customer opens a web
page and sees a green address bar, the customer is sure to proceed as it is a sign of safety. On
the other hand, if the bar turns red, it means the site is unsafe to proceed.

Online Spending Limit

Daily limits are placed on the customer’s card for security reasons. The bank limits the online
spending to ensure safety from any theft. Thus, the customers are allowed to set an upper limit
on a transaction or a daily limit on credit, debit, or Digital Banking transactions. This reduces
risks in case of a breach.