What is Digital Banking?
Digital banking is the incorporation of new and developing technologies throughout a financial services entity, in concert with associated changes in internal and external corporate and personnel relationships, to provide enhanced customer services and experiences effectively and efficiently by John Ginovosky.
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Digital Banking is a generic term for development of banking services and delivering products through electronic channels, such as Automated Teller Machines, the telephone, the internet, the mobile phone.
Customers are still waiting for new fastest banking services but India is developing in Technology enabled banking service in a revolutionary transformation that will bring many new features, including anytime, anywhere, ultra-fast response times in banking transaction.
Definition of Digital Banking
Digital Banking is the application of technology to ensure seamless end-to-end (STP in the ‘old’ jargon) processing of banking transactions/operations; initiated by the client, ensuring maximum utility; to the client in terms of availability, usefulness, and cost; to the bank in terms of reduced operating costs, zero errors and enhanced services. – Stanley Epstein
Concept of Digital Banking
Digital banking is the wave of the future. Digital banking” often gets confused with mobile banking and online banking, and even omni-channel banking. However, these involve digital applications.Digital banking has been seen as an add on advantage to traditional and existing banking services.
Digital banking provides following benefits to the banks:
- The elimination of costly back-office processing operations, fewer (or ideally no) errors.
- Number of customers will be increased for banks because of the increased convenience of banking.
- Digitalization reduces human error.
- With more digital data available with banks, they can take data-driven dynamic decisions by using digital analytics. This benefits both customers and banks.
- Need of handling large amounts of cash will be reduced.
- Smaller branch footprint (the typical branch can become a kiosk affair, providing technology interfaces for the client to use plus the ability to deal with banking specialists via a video link) – a minimum number of actual staff will be required.
- Productivity will be increased.
Needs of Digital Banking
Digital mega trend is profoundly influencing all businesses globally. Ubiquitous and high speed connectivity, savage computing power in smartphones, instant information, and cheap unlimited storage are upsetting market positions and creating disruptive new ways of serving customers.
Fortuitously for Indian banks, this mega trend is maturing in the context of proactive regulatory reforms, a rapidly expanding unique identity project, and an overarching ambitious government vision for digital India.
Digital transactions lead to higher current account and savings account (CASA) balances in accounts by as much as 20 percent, and use of information bureau and analytics based early warning systems can reduce the charge of bad debt substantially as shown by the continuously reducing NPA in retail.
Digital transactions lead to higher current account and savings account (CASA) balances in accounts by as much as 20 percent, and use of information bureau and analytics based early warning systems can reduce the charge of bad debt substantially as shown by the continuously reducing NPA in retail.
Prerequisites of Digital Banking
The following elements form a clear model of success for banks:
- Smart management of information is vital to digital banking. Banks need to marshal online data — the unique virtual identity for each individual. It is mainly to offer their customers personalized attention.
- Banks need to act, but more important, they need to act strategically. Providing the cohesive, cross-channel experience that customers expect requires an enterprise-wide approach that can be implemented in localized ways, such as for specific lines of business and functional areas.
- Although the ROI of digital banking is substantial, the costs are steep for not adopting digital banking. Costs include lost opportunity, customer attrition, and stagnation in new-customer growth and product sales.
- Embracing the holistic shift to digital and its streamlined, cross channel approach requires banks to evaluate their options carefully and select the ones that best fit their strategy.
- An enterprise roadmap is a key prerequisite for implementing a digital banking program. The roadmap balances key customer values (loyalty, convenience, relevance, interaction, and mobility) against the bank’s values (profitability, loyalty, operating efficiency, market expansion, and risk mitigation).
The technologies required for a digital banking implementation fall into seven discrete areas of strategy –
- Infrastructure: Few banks have the integrated infrastructure in place to enable the seamless retrieval, storage and distribution of information and data, both up- and downstream. Cloud technologies lend themselves to digital innovation with their security, reliability and elasticity.
- Data: Precise information is the key to understanding bank customers and creating unique digital personas for tailored interactions. Financial instruments and transaction processing, however, typically involve the exchange of large volumes of data from multiple sources.
- Content: An enterprise content management roadmap for digital banking includes storage, management, workflow, process, integration, BI, analytics, reporting, information architecture meta-model, content type, and lifecycle and syndication methodology.
- Business Process: Process components include a service orientation, governance, technology adoption, process orchestration, tuning and optimization, rules engine adoption and enterprise service bus adoption.
- Analytics: Analytics capabilities include multi-dimensional analysis by geography, customer type, product, traffic source, channel, campaign, Web page, scenario, IVR path, and speech to text. They also include data, Web site and realtime content analysis, user profiling and segmentation, campaign optimization, time and path correlation, frequency and monetary analysis.
- Social and Mobile : Information must be accessible from anywhere and from any mobile form factor. Other key components include social media and collaboration for external client-facing business applications and for internal productivity improvements, gamification for customer engagements, the digital app store as a one-stop shop for mobile business applications, authentication and access security.
- User Experience : A consistent user experience needs to be provided across all major interaction touchpoints. Other key factors include an information architecture, personas, wireframes, screen flows (process UI), visual design, interactive mockups, campaign management, branding, search engine optimization, user experience and session management, responsive Web design, usability, prototyping and UI technology.
Digital Revolution in India
The digital revolution is upon us in its full glory. Technology is advancing by the day. Affordable smart phones and high bandwidth access will reach an unprecedented number of Indian consumers in the coming years.
The Indian Government’s ambitious vision for a digital India emboldens us to predict that within the next five years we will see a new, digitally savvy Indian consumer emerging across urban as well as rural markets.
The phenomenal impact of the information bureau on the retail lending business in India is evident in the continuously declining NPA ratio of retail lending for banks.
Extension of the information bureau to cover a larger population will lead to a majority of Indian people who are self employed, or employed in the unorganized sector, to have credit history and eligibility for credit from the banking sector.
Digital Channels Adopted by Indian Banks
The digitalisation of banking operations is another transformational change which could potentially affect the business models of the banks operating in India. The digitalisation efforts of banks in India have been further facilitated by improvements in various aspects and favourable demographics.
It has plans to provide universal access to mobile connectivity, information for all, and public internet access programmes. The government is also focused on promoting e-governance.The multiple digital channels used by banks in India are listed below:
- Mobile Banking: Most of the banks in India offer mobile banking services which include bill payment, fund transfer, customised offers, location-based services besides basic banking services.
- Social Media Services and Analytics: Social media banking helps in obtaining data about the customer which can be put through an analytics software to help serve customers better. Social data analytics could also provide banks with information about potential defaulters on loans.
- Cloud and Near Field Communication Technology (NFC): The NFC payments are capped at INR2,000 in India without a separate pin authentication. Biometric technologies are also fuelling innovation in the banking space. For instance, by scanning one’s fingerprint and hitting the Aadhaar database, one’s KYC (know your customer) is automatically generated, eliminating the need for photo-identification or having to carry a duplicate documents.
- Personal Finance Management: There are various applications, both by Indian and foreign players, that can be used by Indian users for personal finance management. The ‘Money View’ application shows a snapshot of all personal finance of its users.
- Wearables: The concept of wearable devices is still at a very nascent stage in India with its primary use being in health-related devices. Banks can tap the opportunity created through ‘wearable devices’ to engage existing customers. Wearable technologies are a growing trend in India but has not made its presence felt in the banking sector as only a handful of banks have started offering these services.
- P2P Funding/Digital Platforms : Crowd funding is one of the emerging ways of raising capital using online platforms in the form of groups/communities. It focuses on small business start-ups and lower interest rate.
Role of Digital Banking in Financial Inclusion
Digital banking offers numerous advantages that work towards improving the same, largely riding on the fact that Indian consumers have shown tremendous preference for digital technologies, with growth rates for e-commerce as well as mobile phone adoption far outstripping rates in developed economies.
The Reserve Bank of India broadly defines financial inclusion as providing access to a ‘wide range of financial services at a reasonable cost’.
Further, government initiatives, regulatory support and active participation of public as well as private participants could be key levers for enabling a successful transition to a financially inclusive.Digital banking is likely to provide huge impetus to financial inclusion.
India’s financial inclusion status is more likely to improve through technological interventions as:
- Brick and mortar businesses are proving to be an uneconomical proposition for banks in rural or remote areas.
- There are distribution challenges due to localised constraints.
- Conventional banking models are not feasible for low ticket size of transactions, deposits, loans, etc. in such regions.
- Several accounts are no-frills in nature.
- There is a lack of awareness of financial products.
- There is a high requirement of skilled and trained manpower.
Financial inclusion is likely to remain high on the government’s agenda over the next decade. Over the last several years, many initiatives have been progressively launched for its propagation.
‘Digital India’ The ‘Digital India’ initiative, coupled with a payments infrastructure, is laying the cornerstone for a digital economy, keeping in mind the increasing willingness of people to use the internet, and the rising data traffic in the country.