The banking system in India, since its inception, has followed a traditional way of functioning. With the advancement and application of technology, Indian banks attempted to alter their situation, but they were largely reliant on technological transfer from foreign banks. But today, the banking system focuses on providing time-bound, coordinated, and effective financial services to the general public. These very efforts of the Indian banking system show the revamp which has come up due to the coordinated efforts that have accelerated the pace of digitisation of the banking sector. While if we discuss what technological revamp has occurred, UPI-based remittance and Aadhar Enabled Payment System (AEPS) in India are far ahead of technologies adopted by many foreign nations. Hence, in this article, we will discuss how digital transformation in India has brought about efficient banking services, enabling ease of transaction and also bringing out the utilisation of new age innovations.
Making the Switch: Traditional to Digital
The Indian banking system, which was formed 252 years ago, has long since abandoned its conventional mode of operation and evolved into a new form with the development of new technology. People no longer have to stand in long queues at the bank because they carry their banks everywhere with them and may electronically transfer money in a matter of minutes. Overall, banking technology has helped people become more independent.
The period of competition and offering the finest services to consumers in the banking industry began following the nationalisation of banks in 1969 and notably after the liberalisation in 1991. The internet’s journey also started at this time. The potential for using the internet on a global scale was thought to be very helpful in improving the banking industry, although it is utilised less frequently. HSBC, the first private foreign bank in India, introduced the first ATM in Mumbai in 1987, despite the fact that the first commercial ATM in the world started operating in the US in 1969.
Withdrawals and money transfers used to take a lot more time in the past. It is now quite simple because of ATMs, Internet banking, and credit cards. Paperless banking continued as technology advanced, and today, Electronic Funds Transmission (EFT) has surpassed paper-based payment transfer. The Indian government has made a number of efforts in recent years to employ banking technology to streamline the banking sector. The cornerstone of the digital economy was set by the government’s ambitious Digital India Mission and Payment System. Cashless transactions were made possible for farmers by Rupay and Kisan Credit Cards, but they were also made possible for people working in other professions by General Credit Cards. The AEPS is also essential for the financial inclusion of those who are not eligible for formal banking. The Direct Benefit Transfer System (DBT), which was launched in January 2013 to immediately transfer the benefits of social security systems to the accounts of the general population without any financial leakage, is also demonstrating excellent results. Also, the Reserve Bank of India took a crucial step by establishing a Payments Bank, which aimed to expand the access of small businesses, low-income families, migrant workers, etc. to payments, remittances, and other financial services using safe, tech-enabled methods.
With the passing of time, the banking sector in India has also reached a new level. Banks today have a major focus on providing excellent customer service and ensuring customer satisfaction. New improvements in product design and delivery have emerged in the banking and financial sectors as a result of information technology. The banking philosophy was completely altered by financial innovation brought on by technical progress, and this was further refined by competitiveness in the banking sector. The banking system’s challenging business environment encourages increased innovation in the areas of products, processes, and markets.
Automated Teller Machine (ATM): An automated teller machine (ATM) is a computerised telecommunications device that offers customers of a financial institution a safe way to conduct financial transactions in a public setting without the assistance of a human clerk or bank teller. Initially, money could only be taken out of an ATM, but now it is also possible to send money to anyone’s account using an ATM. Additionally, many banks now offer the option of making deposits using ATMs. Only accounts belonging to the sender and recipient, however, may be in the same institution.
Mobile Banking: For unskilled labourers, manual labourers, and less educated persons in rural and urban regions, banking correspondents are crucial. They assist people in a number of ways, including as creating an account and depositing or remitting money. A neighbourhood grocery store or other retail establishment can also serve as a banking correspondent. Tech-savvy consumers have readily converted to using their mobile phones for banking due to new technology and increased competition, and banks are continually updating their technology to make it more convenient. Additionally, new banking apps have been released for several iOS and Android phones. As a result, one can do everything with mobile banking, including financial transfers, acquiring bank statements, recharging mobile devices, and bookings.
NEFT and RTGS: According to the Reserve Bank of India, National Electronic Funds Transfer (NEFT) is a nationwide payment system that makes it easier to transfer money from one person to another. Under NEFT, individuals, businesses, and corporations can electronically transfer payments from any bank branch to another bank branch in a participating nation that the recipient has an account with. Any person, business, or organisation having an account at a bank branch is eligible to transfer money through the NEFT system. Another such system is the Real Time Gross Settlement System (RTGS), which has been available in India since March 2004 and allows banks to electronically direct one bank to transfer money to another bank’s account. The RBI maintains and runs the RTGS system, which offers a way for banks to move money quickly and efficiently, facilitating their financial operations. Both systems are efficient in dealing with money transfer from one bank to another. Indian banks are often used as banking intermediaries for mobile and international money transfers.
Core Banking Solution (CBS): Currently, commercial banks and cooperative banks offer the Core Banking Solution service throughout the nation. Because of this, banking is now available anytime, anywhere. As the number of people using mobile banking rises, this pattern suggests that these digital solutions are gaining traction.
The aforementioned features make services easier to access and take cutting-edge banking one step closer to reality. Many tools are currently being tested. Although many analysts have conducted social engineering on the adoption of technologies, it is undeniably true that emerging technologies will be advantageous and provide services that are more effective. Voice, gesture, virtual reality, augmented reality, interactive holographic mannequins, and other technologies may be used by customers to access innovative banking experiences throughout the course of the next decade. As a result, certain new technologies that are or will be in use will add value and deliver the best outcomes.
Robotic Process Automation: Banks are processing a huge volume of unstructured data as a result of the digital economy’s explosive growth. Banks can use behavioural data in addition to banking transaction data to lead their clients into a new frontier of innovation. By combining several technologies that enable cognitive and robotic processes, bankers can quickly, broadly, and accurately decide by anticipating the activities of their consumers. Smart virtual assistants assist clients by managing financial tasks and dispensing pertinent data. Hence, robotic process automation employs bots to complete repetitive operations more quickly and effectively without the need for human intervention.
By analysing customer business data, banks are able to respond to customer needs more quickly today. Due to advancements in technology and digitization, the banking industry is now better equipped to meet market competition, understand upcoming goods, and satisfy clients while making decisions based on actionable insights in real time.
Cyber Security: Cybercriminals are waiting in anticipation for sensitive personal information because the financial sector handles it. Cyber threats are expanding along with the usage of technology in banking. Regarding cyber security, banks are becoming more vigilant. For the purpose of identifying risks and preventing system disruption, they are increasingly installing sophisticated, analytical, real-time monitoring, biometrics, and behaviour analysis software. Additionally, network-level security is provided by the anti-hacking tools they are deploying.
Cloud Services: Another technological innovation in the banking industry is cloud computing. Instead of using personal servers and devices to handle applications, this technique makes use of shared computing resources. It offers internet services like data analysis, processing, and storage. Although cloud computing in the banking industry is still in its infancy, it has the potential to increase the competitiveness of the Indian banking sector. Banks can lower the cost of data storage by using cloud-based services while maintaining the security of client information by saving on capital and operating expenditures. Additionally, cloud computing encourages safe digital money transfers, wallet payments, and online payments.
Chatbots: Banks are introducing new financial chatbots that can reduce transaction times by up to 4 to 5 minutes as voice-based client engagement expands. Additionally, banks are able to quickly and inexpensively obtain customer feedback.
API Platform: Traditional banks must deal with increased competition from FinTechs and rising customer expectations, which is accomplished by the comfort and accessibility of advancing technologies. With increasing network connectivity and digitization, it is essential for banks to create a biological community centred on customer information. Banks are looking for new sources of revenue and strategies for estimating computerised resources and customer information. As a result, banks are now interacting with fintech through API platforms, enabling them to transform into a platform where users and third-party service providers may connect to create a flexible and individualised experience. The API Banking Platform is made to function through an application programming interface (API), a software bridge that enables two applications to communicate with one another.
Biometrics: With the rise of digitization of processes and many advanced channels, banks are observing a shift in perspective in how their customers associate and work with them in this interconnected environment. This increased network and digitization have set up several passage points in the system, making banks more vulnerable to attacks. So, to check a client’s personality, biometric validation procedures use unique organic or behavioural features. Therefore, as cash usage gradually declines, businesses are developing new payment systems. Customers can quickly pay by merely confirming their identity with their fingertips or face.
The banking sector in India faces both distinct opportunities and problems as a result of technological advancements. To reach and maintain high service and efficiency standards while remaining cost-effective and delivering a sustainable return to shareholders, it is imperative to develop or acquire the correct technology, deploy it properly, and then leverage it to the fullest extent possible. Therefore, one of the biggest challenges facing the Indian banking industry is managing technology. Many people in developing nations like India lack access to banking services because of their dispersed and disconnected locations. However, if we focus on those individuals who use banking services, their expectations are growing as a result of the development of information technology and intense rivalry between the services and products offered by various banks. The quantity of services offered has expanded as a result of foreign banks entering the Indian market, and banks have placed a strong emphasis on exceeding customers’ expectations. The urban and rural populations can become more closely integrated as a result of technological improvements. However, providing consistent service to customers, whether they are urban or rural, is the main challenge. Therefore, customer retention will be a significant concern. Therefore, banks should strongly emphasise growing their market share and keeping customers.
Without a doubt, the advantages of technology have drastically changed how modern banking is perceived. The purpose of banking today is to engage with clients and enhance their experiences, not merely to satisfy their needs. The only way to achieve this goal is to offer the consumer the ideal balance of technology and conventional service.
India, one of the top 5 economies in the world, offers great growth potential for the banking industry. Today, banks are always experimenting with new technologies, with words like mobile solutions and cloud computing being used more frequently. Mobility and client convenience are seen as the key drivers of growth. In order to remain competitive in this dynamic environment, the Indian banking industry has faced numerous challenges, including growing competition, pressure on spreads, and systemic changes to align with international standards. These challenges have forced the industry to re-evaluate its strategies and procedures. In order to meet the constantly changing needs of clients and to increase their market share, banks must implement a comprehensive strategy. The secret is to create complex things with inexpensive technology. This necessitates a thorough examination of market, competitive, and customer trends. This study is crucial in order to develop new strategies, products, and services. Additionally, given the significance of digitization as a necessity, particularly in the pandemic era, it is worthwhile to encourage innovation that transforms not just the banking industry but also customers’ mindsets.
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