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Impact of Digital Banking on the Financial Industry : All You Need to Know Research Team | Posted On Friday, March 15,2019, 06:26 PM

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Impact of Digital Banking on the Financial Industry : All You Need to Know



Definition of Digital Banking

Digital banking is also known as online or internet banking. When the bank provides online services to its customers where they can carry out various bank related activities, it is known as digital banking.  Many banks offer digital banking through websites that can be accessed by computer as well as smartphone apps.

The services offered by online banking are transfer of funds from one account to the other, checking balance, obtain credit card statements, loan details, pay bills and so on. The first bank to offer digital banking services in India is the ICICI bank in the year 1996.

With time, other banks also started this service and now a majority of the Indian banks offer online banking services to customers.

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SEE ALSO: What is Digital Banking

History of Digital and Online Banking

In India the need for digitization of banking services was felt in the late 1980’s, in order to improve the customer care service, book keeping and MIS reporting. Initially, banks began to use PCs with the help of LAN connectivity. They trained their staff to use the system for maintaining bank records.

With further advancement, banks adopted the core banking platform. The CBS enabled banks to enhance the comfort features of customers.

A major change came in the banking system with the rise in competition among private and foreign banks. E-banking has resulted in reducing costs drastically and has helped generate revenue through various channels.

Digitization has helped banks increase customer base through ease of access of banking services. Digitization has reduced human error. It is possible to access and analyze the data anytime, enabling a strong reporting system. 

Commercial Banks in India have moved to newer technologies by way of Bank Mechanization and Automation with the introduction of MICR based cheque processing, Electronic Funds transfer, Inter-connectivity among bank Branches and implementation of ATM which has increased efficiency of anytime, anywhere banking facilities.

Technological Milestones in India

National Electronic Funds Transfer (NEFT) is the most commonly used electronic payment system for transferring money across bank branches. It operates in half hourly batches. At present there are 23 settlements. 

Real Time Gross Settlement (RTGS) is primarily used for high-value transactions which are based on 'real time'. The minimum amount to be remitted through RTGS is Rupees Two Lakhs. There is no upper limit. 

Immediate Payment Service (IMPS) is an instant electronic funds transfer facility, offered by National Payments Corporation of India (NPCI) which is available 24 x 7. 

The usage of prepaid payment instruments (PPIs) for purchase of goods and services and fund transfers has increased considerably in recent years. The value of transactions through PPI Cards (which include mobile prepaid instruments, gift cards, foreign travel cards and corporate cards) and mobile wallets have drastically increased.

Commercial Banks in India have moved towards technology by way of Bank Mechanization and Automation with the introduction to MICR based cheque processing, Electronic Funds transfer, Inter-connectivity among bank Branches and implementation of ATMs.

SEE ALSO: History of Online and Digital Banking

How Digital Banking Helps Customers?

Listed below are a few benefits of digital banking in India:

  • Customer Care Service: With the increasing use of smart phones and laptops, customers can access bank accounts at the click of a mouse. All you need is your laptop and internet connectivity. This saves a lot of time and effort as you don’t have to visit the bank personally to carry out banking functions. A bank customer can easily carry out his banking functions amidst his busy schedule. The customer can access these facilities from anywhere, anytime.
  • 24*7 Availability: The customer can avail these services anytime he wishes. You can check your account balance at any time of the day. These services are also available on public holidays, Sundays and round the clock. Now, you can transfer money or check account balance without having to worry about the time.
  • Time Constraints: Previously, a number of banking services required considerable waiting period. For example, earlier the process of applying for a personal loan and getting approval and the loan sanctioned, took a minimum of a month. Now, with the emergence of online banking, personal loans can be applied for and approved within a day. Digital banking had made transactions and banking services faster, smoother with no time constraints.
  • Bill Payments: previously, paying of bills required the customer to carry cash and stand in long queues. The customer had to visit different offices to pay bills. Digital banking saves a lot of time and effort. Not only can he pay bills online, he can pay all types of utility bills from the comfort of home.
  • Lower Overheads: Digital banking has considerably reduced the operational cost of banks. This has helped banks save money and cut down costs. With a number of services being offered, online banks can now charge lower fees. This also benefits depositors who can now get higher interest rate on deposits. Lower the operating cost, higher is the profit margin of the banks.
  • Banking Benefits: With the increased convenience of anytime, anywhere banking, the number of customers has increased. Human error in calculations and record keeping has reduced, if not eliminated. With records of every transaction being maintained electronically, it is possible to generate reports and analyze data at any point, and for different purposes.

Future of Digital Banking

At present the government of India is aggressively promoting digital banking. The launch of United Payment Interface (UPI) and Bharat interface for money (BHIM) by national payments corporation of India, is a significant step in the payment system domain.

This not only proves that we are adopting newer technologies, we are constantly innovating as well. The UPI interface allows the user transfer instant funds across accounts on the basis of virtual address without mentioning the bank account. The BHIM app is used to facilitate e-payments directly via banks and simplify cashless transactions. The main advantage of BHIM app is that you don’t have to remember banking details.  All you need is a virtual payment address of the payee to make digital transactions.

We can gauge the future of digital banking in Indian banking sector, to be bright. We as customers can expect further innovation and better services in the banking sector.

Digital banking should not be viewed as advancement in technology or better customer care. It is a revolution in the functioning of banks and the way it offers services to customers.

Improvisation of Mobile Banking 

With digitization, the market is flooded with smart phones. Internet is easily accessible with higher speeds. This has enabled customer’s access banking services with smart phones.

Most of the commercial banks have developed mobile applications to enable customers make transactions and get banking facilities on their phones. With advancement in technology, we can expect advanced features on these apps, which would streamline the process.

Part of the improvement in mobile banking, also includes creating a cohesive experience across various platforms. Customers cannot see the different channels; they view all the channels to be the same be it mobile banking or net banking. To enhance the customer experience during digital transformation in banking, each channel must have a cohesive feel and experience, so that the customers can seamlessly operate across channels without hindrance to the service experience.

Personalization Of Digital Banking Through Artificial Intelligence

Artificial intelligence is about to change the face of digital banking. Business Analytics and Artificial Intelligence (AI) has the potential to bring a major change. Robotics, enabled by AI, is expected to be a future game changer for banks.

Many private banks are planning to deploy Robots for customer service, investment advisory and credit-approval process to improve the services and be cost effective in the long run. However, lack of understanding of artificial intelligence can be a security concern in digital banking. However, Digital Banking will be the most preferred form of banking in the coming years.

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