With the augmentation of digital technologies, consumers have become more demanding of virtual experiences in today’s time. The pandemic has only amplified the need for easy access to banking products, services and information and surged the need for stress-free access to banking products and services. The future of banking will be driven by major technological changes and will transform drastically. The future of banking is ‘Digital’. The COVID-19 pandemic has re-designed our lives in terms of how we shop, work, even how we bank, and this has led to a major change in customer behaviour.
However, the digitization of the banking sector is not quite sudden. Financial sector digitization began in the early 90s when Automated Teller Machine (ATM) and Electronic Fund Transfers (EFT) were introduced. Consequently, internet banking was permitted in India, followed by the National Electronic Fund Transfer (NEFT), Immediate Payment System (IMPS), RTGS, etc. Lately, India has been heavily relying on the UPI or digital wallet payment system. Intending to digitize the economy, the Government brought in demonetization in 2016, and then GST was introduced in 2017. With such bold initiatives, the Government of India has voiced its intention loud and clear – to make the banking and financial services sector truly digital. Furthermore, these steps have conceded incredible results. The transactions through debit and credit cards, UPI platforms have seen an upsurge, especially over last year due to the pandemic.
How Have The Banks Digitised?
As India’s banking industry experiences major positive changes, the country’s banks are also altering. They are heavily investing in digital technologies to be at par with leading global competitors.
While for a common man, digitization of banking services may mean digitizing payments and receipts, but it actually encompasses lot of other activities too. Just like any other business or organisation, banks also have vendors and customers. In the last few years, banks have been thoughtfully improving their tech quotient to cater to both customers as well as vendors. Under these circumstances, banks and other financial institutions have encouraged the implementation of technology in almost all functions of banking, whether it be credit rating, CIBIL score, investment banking, lending, borrowing, private banking, consumer service and loans, etc. This has resulted in employee productivity improvement and providing better consumer experiences.
Multiple technology solution providers in the Indian market are also assisting banks and other financial institutions to ramp up their technology game. These solution providers help banks to assess their current technology footprint and suggest appropriate technology that can be used to accelerate their digital business. Some examples of the latest technology used are:
- Vendor management for banks: Application Programming Interface known as API makes vendor management easier for banks ensuring reconciliation between vendor invoices received and vendor invoices uploaded on the GST portal amongst other benefits.
- Digital lending through DSA: DSA or Direct Selling Agents act like loan agents for banks. They reach out to potential customers or borrowers and handle their end-to-end loan processing.
There are multiple benefits of digital banking such as:
- Improved accountability: Since each transaction has a record and is easy to track, the transactions become transparent. With transparency follows accountability. These two together create a safe and secure banking space for the citizens of the country.
- Improved tax revenues: Digital transactions make certain that tax frauds and evasions are kept in check. Since every transaction is tracked electronically, the odds of suppressing income and evading taxes reduce significantly. Enhanced tax collections mean a better development rate for the nation.
- Wider reach of banking services: In the past, banking was considered only for the affluent and educated working class. Rural India, which is a larger part of the population, did not have adequate access to banking services. However, the scenario has completely transformed in the last few years. The rural as well as the urban customers, who were not proficient with the banking domain are also using digital payments to a large extent. This has been a very exciting journey for the Indian economy as even a small roadside vendor now has a bank account and accepts payments through digital wallets.
- Convenience: The convenience of digital banking is noteworthy. Payments and receipts can be made with a click of a button from anywhere with a fully secured gateway. Furthermore, apart from receipts and payments, other digitization technologies have eased out the bank’s compliances and smoothened the service rendering process.
- The Start-up age: Indian start-ups in just four months in 2021 raised approximately 7.8 billion, despite the second COVID-19 wave. Our country is leading the start-up space globally. With several start-ups coming up and growing each day, it is only natural and crucial for the banks, which usually fund these start-ups, to become equally tech–reliant.
The Government of India has taken multiple steps and measures to enable better and more accessible banking experiences. With the growth trajectory seeming optimistic, the Indian banks, both private and public are comprehending the importance of using digital technologies such as RPA’s, Artificial Intelligence, Machine Learning. These technologies open new possibilities. Financial institutions including banks would have to re-assess their digital strategy to check if they are capable of meeting future needs. Besides, what also needs to be done is to outline the roadmap to challenge such technology disruption. Precisely, transaction banks are changing their digital investment attention from one that is largely internal to one that is externally driven. Beyond technical abilities, banks are now more than ever closely considering the needs of their clients.
By Niraj Hutheesing, Founder and Managing Director, Cygnet Infotech
The Open banking is the sector that is going to rule the future of the digital payment industry