21 IMPACT OF DIGITAL REVOLUTION ON INDIAN BANKING SECTOR
Priyanshi Dubey
Shri Cloth Market Girls Commerce College, Indore
Abstract - Information technology has attracted many banks in India, by starting up new markets, new products and efficient delivery channels for the banking industry. In the development of our Indian Economy, Banking sector plays a very vital and key role. With the use of technology there had been an increase in invasion, effectiveness and good union.
It has not only enlarged the cost usefulness but also has helped in making small value business viable. It also enlarges choices, creates new trade, and improves production and good organization. The focus is shifting from group banking to class banking with the introduction of value added and customized products. This new Technology allows banks to create new innovations in operations of banking with reducing efforts of manpower. Now a day‟s banking gives us facility of transaction 24 X 7working, made possible by the use of Tele banking, ATMs, Internet banking, Mobile banking and E -banking. These technologies are being used to reach out to maximum number of customers at lower cost and in most efficient manner. The beauty of these banking innovations is that it puts both banker and customer in a win- win situation. Effective use of technology has a multiplier effect on growth and development.
Keywords: Digital Banking, Information Technology, Internet Banking, India, Digi-world, Digital Financial Services, Digital Evolution and Revolution.
1 INTRODUCTION
New developed and implemented advancements change the manner in which individuals act and communicate in their regular day to day existence. They are changing the business world strategic setting, by modifying customers‟ conduct and desires, business direct and structure of competition, so the banking business is no special case by any stretch of the imagination. A great many people in the banking sector concur that digital banking is the flood of things to come. “Digital banking” regularly gets mistook for portable banking and online banking, in light of the fact that all these include digital applications, in some structure. Digital Banking is desperation, not a scholastic inquiry, and these days digital change goes past banking. Digital banking is the joining of new and developing innovations all through a financial services entity, working together with related changes in inside and outer corporate and faculty connections, to provide upgraded customer services and encounters successfully and efficiently.
The movement to a digital banking world won‟t be smooth and will prompt further fragmentation in the financial service markets. Banks must experience a more profound alteration of their business, culture, and IT, or more all, will require put advancement at its center and use information to make new business, revenue and customer engagement. The challenge has a name Digital Revolution and it is essentially complex for banks, as in they need to “battle” in two fronts: the digitization and the digitalization.
In the event that the previous front is instinctively comprehended, saw and consequently translated into well-defined operational strategies, many years prior with the proliferation of internet, the last one is undeniably progressively burdensome, enduring and unsafe, up to the point of business endurance. Digitalization makes new worth dependent on digital resources and abilities. Most banks are dealing with the main viewpoint however have the chance to promote develop the second one also. Without a doubt, digitalization goes past just subbing simple or physical resources with their digital partners.
Digitalization catches the idea of digital evolution to change business models and the connection between customer esteem and company revenue. Digitization is the transformation of information into a digital structure with the reception of innovation.
Digitization reduces human mistakes and, in this way, customer unwaveringness. Banks all things considered and in all districts are making huge investments in digital activities so as to keep up a competitive favorable position and offer the greatest to their customers.
Likewise, digitization prompts insight and knowledge of strong information, which causes banks to approach customers and get closer to the competition. By embracing digitization,
22 banks are currently providing better customer services. This provides comfort to customers and enables spare to time. Today, individuals have access to banks 24 hours due to online banking. Managing a lot of cash has additionally become simpler. Digitization has additionally profited customers by encouraging transactions without cash. Customers never again need to store cash and can make transactions anyplace, whenever. It is a groundbreaking, particular and open digital support stage that enables individuals to help readiness and speed. The principle steps of the digital banking process have focused primarily on adding to the current offer the utilization of new services empowered with innovation to build accessibility and incentive for customers. In this study it is focuses on the revolution of digitalization on Indian Banking sector, which is a significant worry with the required services provided by the bank to its customers.
1.1 Need and Progress of Digitalization in Banking Sector
In the late 1980s, to improve customer service, accounting and record keeping the need for computerization was felt in the Indian banking sector. Then in 1988, the Reserve Bank of India established a committee to study Computerization in bank headed by Dr. C.
Rangarajan. The process of computerization gained pace with the reform in the Indian economy in 1991-92. One of the main drivers of this change was driven by the growing entries of private and foreign banks in the Banking industry. Several commercial banks began to move towards digital customer service to remain competitive and relevant in the race. The Commercial Banks in India have moved towards technology through the Mechanization and Automation of the Bank with the introduction to cheque processing based on MICR, the electronic transfer of funds, the interconnection between bank branches and the implementation of ATMs (ATM) have resulted in the convenience of at any banking time. The Reserve Bank of India has taken strong initiatives to strengthen payment and settlement systems in banks. Now the Indian government is aggressively promoting digital transactions. The launch of United Payments Interface (UPI) and Bharat Interface for Money (BHIM) by Natio Corporation of India (NPCI) are important steps for innovation in the payment systems domain. UPI is a mobile interface where people can make instant transfers of funds between accounts in different banks on the basis of a virtual address without mentioning the bank account. Indian banks are now working hard for providing following facilities to their customer for increasing their banking business, for attracting more customers etc.
1.2 Research Objectives
1. The present study aimed with following objectives:
2. To study the evolution of Digitalization in Indian Banking sector.
3. To know about progress and scope for Digital Banking in India.
4. To narrate the reasons for banks adopting digitalization.
5. To elaborate the challenges of digitalizing banking activities in India and suggestions to overcome the digital banking challenges.
1.3 Methodology
The study is descriptive in nature. It is based on secondary data, collected from the concerned sources as per need of the research. The relevant books, documents of various ministries/departments and organizations, articles, papers and web-sites are used in this study.
1.4 Operational Definitions
Digital banking is the digitization (or moving online) of all the traditional banking exercises and programs that verifiably were just accessible to customers when physically within a bank branch. This incorporates exercises like: Money Deposits, Withdrawals, and Transfers. Checking/Savings Account Management.
The digital revolution is disturbing the connection among banks and their clients and new highlights constantly seem to upgrade customer experience.
The digital revolution has moved from „existential danger‟ to „potential endurance strategy‟ for traditional banking providers.
23 2 REVIEWS OF RELATED LITERATURE
Vijai, C. (2019) has studied that the Artificial Intelligence (AI) is a quick developing innovation over the world. The banking sector is becoming one of the principal adopters of Artificial Intelligence. Banks are investigating and implementing innovation in different manners. Man-made consciousness is showing signs of improvement and more astute step by step.
In this paper, we will discuss how Digitalization is utilized in the Indian banking sector, what are the advantages and what are the Challenges confronting India‟s Digitalization. Developing that Digitalization offers to FinTech and the different manners by which it can improve the tasks of an Indian banking sector.
Omarini, Anna. (2017) has examined that the Digital Transformation in Banking and The Role of FinTechs in the New Financial Intermediation Scenario. One of the fundamental changes in the business is becoming digitalization which is seeing a profound transformation to the banking system.
Digitalization offers new open doors for banks to put the customer at the center of the development process. New innovations appear to be and remain in the market to upset the retail financial service esteem chain, just as bringing new players into the competitive field. Incumbents and new comers have imaginative switches to embrace. The powers forming these progressions have come out on top to reconsider the job of banking and finance, more as an “empowering influence” than a provider of products and services.
The article targets defining digital transformation in the banking business, laying out what banks and FinTech companies are both developing in the market, and furthermore bringing up that it won‟t be simply the innovation that will be the disruptor of the banking business, yet rather how firm sends the innovation that will cause the disturbance.
Tater et al. (2011) has inspected that the impression of Indian customers towards the utilization of advances as for such factors as comfort, protection, security, convenience, ongoing accessibility, and accurate record of shifted transaction that empower customer‟s selection of Banking Technology.
Different factors, for example, slow transfer speed, specialized disappointment, cheats and ignorance among customers that make obstruction in appropriation, are additionally tried. The outcomes show that statistic factors, for example, sex, age, capability and income assume a positive job in reception of banking innovation. All the banks are utilizing data innovation as a strategic vehicle to remain competitive against different players.
3 EVOLUTION OF DIGITALIZATION IN BANKING SECTOR
In the late 1980s, to improve customer service, accounting and record keeping the requirement for computerization was felt in the Indian banking sector. At that point in 1988, the Reserve Bank of India built up a committee to study Computerization in bank headed by Dr. C. Rangarajan.
The process of computerization picked up pace with the change in the Indian economy in 1991-92. One of the primary drivers of this change was driven by the developing entries of private and outside banks in the Banking business.
A few commercial banks started to move towards digital customer service to stay competitive and relevant in the race. The Commercial Banks in India have moved towards innovation through the Mechanization and Automation of the Bank with the prologue to cheaque processing dependent on MICR, the electronic transfer of assets, the interconnection between bank branches and the implementation of ATMs (ATM) have brought about the comfort of at any banking time.
The Reserve Bank of India has taken solid activities to reinforce payment and settlement systems in banks. Presently the Indian government is forcefully promoting digital transactions. The dispatch of United Payments Interface (UPI) and Bharat Interface for Money (BHIM) by National Corporation of India (NPCI) are significant strides for advancement in the payment systems area. UPI is a portable interface where individuals can make moment transfers of assets between accounts in different banks based on a virtual location without mentioning the bank account. Indian banks are currently buckling
24 down for providing following offices to their customer for expanding their banking business, for attracting more customers and so on.
1. Automatic Teller Machine (ATM): The ATM is the most popular device in India, which allows customers to withdraw their money 24 hours a day, 7 days a week. With the use of ATM card customer can perform routine banking transactions without interacting with a human cashier. Apart from cash withdrawals, ATMs can be u paying utility bills, transfer funds between accounts, deposit cheques and cash, balance inquiries, etc.
2. Tele banking: - Tele banking facilitates the customer to carry out banking transactions not related to cash phone. According to this design, the automatic voice recorder is used for simpler transactions and queries. For complicated inquiries and transactions, manned telephone terminals are used.
3. Electronic Compensation Service (ECS): The Electronic Compensation Service is a retail payment system that can be used to make bulk payments/receipts of a similar nature, especially when each individual payment is of a competitive nature and of an amount relatively minor. This service is useful for organizations and government administrative divisions to make/receive large volumes of payments instead of making transfers of funds by individuals.
4. Electronic Funds Transfer (EFT): Electronic Funds Transfer (EFT) is a system where anyone who wants to make payments to another person/company, etc. one can approach bank and make cash payments or give instructions to transfer funds directly from his/her account to the recipient/beneficiary's bank account. Full details such as the recipient's name, bank account number, type of account (savings or current account), bank name, city, branch name, etc. they must be provided to the bank at the moment of requesting such transfers so that the amount of the beneficiaries' account is correct and faster. RBI is the EFT service provider.
5. Real-time gross settlement (RTGS): The real-time settlement system, through which banks give electronic instructions to transfer funds from their account to the another bank account. The RBI maintains and operates the RTGS system and provides an efficient and faster means of funds between banks that facilitates its financial operations. As the name suggests, the transfer of funds between banks is done in real time.
6. Point of sale terminal:- Point of sale terminal is a computer terminal that is connected in line to the computerized files of customer information in a bank and magnetically encoded plastic transaction card that identifies the customer with the computer. During a transaction, the customer's account is debited and the computer credits the retailer's account for the amount of the purchase.
Current status in Digital Banking
25 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.
UPI is a mobile interface where people can make instant funds transfer between accounts in different banks on the basis of virtual address without mentioning the bank account. Today banks aim to provide fast, accurate and quality banking experience to their customers.
Today, the topmost agenda for all the banks in India is digitization. According to the RBI Report in 2016-17 there are 2,22,475 Automated Teller Machines (ATMs) and 25,29,141 Point of Sale devices (POS).
Implementation of electronic payment system such as NEFT (National Electronic Fund Transfer), ECS (Electronic Clearing Service), RTGS (Real Time Gross Settlement), Cheque Truncation System, Mobile banking system, Debit cards, Credit Cards, Prepaid cards have all gained wide acceptance in Indian banks. These are all remarkable landmarks in the digital revolution in the banking sector. Online banking has changed the face of banking and brought about a noteworthy transformation in the banking operations.
National Electronic Funds Transfer (NEFT) is the most commonly used electronic payment method for transferring money from any bank branch to another bank in India. 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 & services and funds transfers has increased considerably in recent years. The value of transactions through PPI Cards (which include mobile prepaid instruments, gift cards, foreign travel cards & corporate cards) & mobile wallets have jumped drastically from Rs.105 billion and Rs. 82 billion respectively in 2015-16 to Rs. 277 billion and Rs. 532 billion respectively in 2017-18.
26 3.1 Reasons for Banks Adopting Digitalization
There are various reasons which could give a few clarifications for this conduct, yet probably the most significant and affecting elements, causing a profound effect on the digital transformation of financial services are the accompanying patterns.
3.2 The Development of New Technologies
The quick development of new advancements, Internet, cell phones and tablets, in under 10 years, alongside the challenge of new entrants (working digital-just products and services) and new models, adds another dimension to the changing job of banking. Innovation companies and new companies quickly grow their exercises to financial services, consistently developing and competing or working together with banks and other financial establishments in different segments of the financial markets or in exercises that don‟t explicitly require a banking permit. This adds to pushing banks to re-examine the manner in which they work.
3.3 The Change of Customer Expectations
The change is likewise coming from new customer desires. The present customers are not equivalent to they were ten years prior. Their desires towards products and services have changed in only a couple of years. Digital buyers have a place with the digital local age, brought up with Internet: the age conceived somewhere in the range of 1977 and 1994 thought about noteworthy innovation savvy, presented to innovation since early youth and impenetrable to most traditional marketing; and the age conceived in the mid-90s to mid
„00s, accustomed to a media and online environment in which alternatives are practically boundless. The two ages are incredibly associated and depend intensely on cell phones/applications and even wearable to appreciate the best customer-experience or advantage from the most well-known content. They adjust rapidly to new changes and consistently look for data or guidance on the Internet or social networks. These digital shoppers demand more decisions, quick accessibility and direct access to prepared to- utilize data and services. They anticipate quick, sheltered and straightforward banking products and services. They need banks to provide more than simple transactional ser- indecencies and anticipate that they should comprehend their needs and to go about as trusted advisers.
4 OPPORTUNITIES IN DIGITAL BANKING
Untapped Rural Markets: Contributing to 70% of the total population in India is a largely untapped market for banking sector. In all urban areas banking services entered but only few big villages have the banks entered. So that the banks must reach in remaining all villages because majority of Indian still living in rural areas.
Multiple Channels: Banks can offer so many channels to access their banking and other services such as ATM, Local branches, Telephone/mobile banking, video banking etc. to increase the banking business.
Competitive Advantage: The benefit of adopting digital banking provides a competitive advantage to the banks to banks, improves customer relation, increases the geographical reach of the bank, etc. The benefits of e- banking have become opportunities for the banks to manage their banking business in a better way.
Increasing Internet Users & Computer Literacy: To use digital banking it is very important or initial requirement that people should have knowledge about internet technology so that they can easily adopt the internet banking services. The fast-increasing internet users in India can be a very big opportunity and banking industry should encash this opportunity to attract more internet users to adopt internet banking services.
Worthy Customer Service: Worthy customer services are the best brand ambassador for any bank for growing its business. Every engagement with customer is an opportunity to develop a customer faith in the bank. While increasing competition customer services has become the backbone for judging the performance of banks.
Internet Banking: It is clear that online finance will pick up and there will be increasing convergence in terms of product offerings banking services, share trading, insurance, loans, based on the data warehousing and data mining technologies. Anytime anywhere banking
27 will become common and will have to upscale, such up scaling could include banks launching separate internet banking services apart from traditional banking services.
Retail Lending: Recently banks have adopted customer segmentation which has helped in customizing their product folios well. Thus retail lending has become a focus area particularly in respect of financing of consumer durables, housing, automobiles etc., Retail lending has also helped in risks dispersal and in enhancing the earnings of banks with better recovery rates.
5 STRATEGIC FINDINGS TO COPE WITH THE CHALLENGES
For making digital banking services a successful arsenal to cope with changing environment, banks need to take certain measure to overcome the loopholes in securely delivering services electronically. The major initiatives are:
1. The primary focus of banks should be on ensuring reliable service delivery through investing on and implementing right technology.
2. Banks should improve the system security in ATM location and at the same time, they must educate their customers about using their cards with due caution and about the risks involved while transacting through cards.
3. Implementation of technology related solutions involves huge investment. Banks need to look for ways to optimize resources for technology applications. In this regard, global partnership on information technology and skills sharing may help.
4. Cyber frauds need to be kept in control. Despite many steps taken up by banks, news regarding cyber frauds are frequently in the air. Banks need to keep ahead of the fraudster by investing and adopting latest technology.
5. For reducing risks, banks need to conduct a pilot survey, consult experts of various fields and then monitor performance. Further they need to analyses the availability of additional resources and cost of delivering the service, periodic evaluation of new technology and appropriate consideration for the cost of upgradation of information technology equipment‟s.
6. Banks should use proxy server type firewall so that there is no direct connection between internet and banks system. This will facilitate a high level of control and in- depth monitoring using logging and auditing tools.
7. Banks should regularly keep back-up of their data. There should be periodic check on the back up data to ensure the recovery without loss of transaction.
8. Banks should organize meetings with the customers to educate them regarding the use of digital banking services securely.
9. Banks should regularly train their available human resource to tackle the queries of digital banking customers.
10. Business Analytics and Artificial Intelligence (AI) has a potential to bring a major change. Robotics, enabled by AI, is expected to be the future game changer in the 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.
6 DISCUSSION AND CONCLUSION
Banking and financial services have consistently been very formal in nature, and in light of current circumstances. In any case, things are, quickly transforming in the digital period. It is as significant that the banks stay as transparent, as their customers remain authentic.
The primary target behind coordinating banking services with innovation is, without a doubt, accommodation. Innovation has now become commonplace to most people, to an extent that it impacts their way of life. It, at that point, becomes fundamental for businesses to separate themselves in the digital space with one of kind contributions.
The new experts have made the capacity to utilize the networks and data that they make around their customers, products and services to produce an exceptionally customized customer experience. Digital experience is unquestionably increasingly customized. Another influx of innovation is revolutionizing the manner in which customers connect with their finances. From social to portable capacities, banks are reconsidering their method for doing business to offer a superior customer encounter and stay
28 competitive. By taking a gander at the situation existing now in India, one can find that People are currently taking increasingly more bit of leeway of the digitalization if there should be an occurrence of banking.
Traditionally, banking practice use to focus on “prod expanding deals targets) as opposed to seeing how best to charm its customers. In recent times, banks are quick to become more customer with the assistance of digitalization Indian banks are presently getting more customers as well as conveying first class services, as proficiency considers well. In this inventive business model, it is critical to guarantee administrative compliance for smooth and long-haul execution. The key challenge in the digital age is to guarantee that all customers are protected against cybercrime, and that the most exceptional cybernetic values are utilized. The change to digitalization and its congruity ought to serve to reduce costs for the business, since this will reduce work and robotize the system.
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