Banking and financial services are the backbone of any economy. Development of these industries is vital to the growth of the country. In the past two decades, the Indian banking sector has emerged as one of the most sophisticated and advanced industries, all thanks to the digital transformation in the banking industry. The advent of modern internet has sparked up massive transformation and evolution of banking services. People often refer to this as digitization or digitalization of banks. The primary factors that have brought in this drastic transformation are the emergence of modern investors, customer expectations, and predominantly, technological innovations and advancements. This change has radically led to the change in the core banking processes that have modernized considerably. Internet banking, mobile banking, mobile payments, and Fintech are some of the greatest products of digitization of banks. These services have truly replaced the traditional methods of banking with modernized and convenient ways.
What is Digital Banking?
Digital Banking is not a concept, but a shift that is a result of the adoption of modern technological means into banking space. In a broader perspective, it is providing banking facilities to the customers over the internet. It is often confused with internet banking. However, internet banking is only one aspect of digital banking.
Digital banking consists of several processes that are completed using high levels of automation and web and application-based services. It allows the customers and clients to access their bank accounts and other financial information through desktop, mobile, and smartphones. However, they must have access to the internet. The transformation has brought a change for front-end as well as back-end operations. The biggest perk of digital banking that the customers have experienced so far is that they can perform banking activities 24/7 without having to personally go to their bank branch. Many transactions and transfers can be performed from the comfort of their home or office. People no more have to stand in queues to deposit, withdraw or transfer money, to open a bank account, apply for financial products, loans, bill payments, inquiries, and several other banking procedures.
In a booming economy like India, more and more people are getting connected to Digital Banking platforms every day. With digital banking technology, one can perform every transaction in a simplified and secure way. Apart from account management, banks are also providing investment options and automated wealth managers through mobile banking apps. Adoption of technological innovations has changed the way the business of money is performed. At the same time, it has changed how banks with its customers and customers with their banks interact on a daily basis.
Rise of Digital Banking
The origin of modern banks in India can be traced back to the 1770s when Bank of Hindustan came into existence. It was followed by General Bank of India and State Bank of India, which is now the largest bank in the country. However, banks have come a long way. Their constant evolution led to the advancement of the Indian banking sector and digital banking is one of the latest phenomena in the banking industry.
Digitization of banks started in the 1960s when ATMs and cards were introduced. With the advent of broadband internet in the 1980s, efforts were made to make progress in the field. But it was not until the 1990s, when the internet emerged and online banking became a reality. Changes continued to happen, and the industry got a technological makeover. The economy opened up for foreign and private banks which led to the adoption of computers, core banking solutions, and other digital methods. Digital methods gained popularity; and ATMs, Electronic Fund Transfer, Computerization and Branch connectivity became a norm. In the 2000s, e-commerce developed and became a whole new industry. This was backed up by internet banking and similar products of digital banking technology. Alongside, we were flooded by the development of new banking methods like IMPS (Immediate Payment Service), RTGS (Real Time Gross Settlement), NEFT (National Electronic Funds Transfer), Online Banking, and Telebanking. The rise of these new technologies contributes to what is now called paperless, branchless and signatureless banking.
Today, the banking industry is one of the most highly advanced and powerful sectors of the Indian economy. However, efforts are being made to improvise it day by day.
Digital Banking Trends and Technologies
1. Automation of Core Banking Methods:
Due to the digitalization and adoption of newer technologies, automation of most of the core banking processes has become the priority for the banking industry. The banks are moving towards faster and swifter solutions to improve back-office as well as front-end processes. This is important for digital transformation in the banking industry as well as to stay relevant in the banking space. Bringing change in their IT structures, banks are able to automate several important tasks that are essential to everyday functioning and improved customer experience. This trend has proven beneficial in bringing down the operation costs and improving efficiency.
2. Open Banking:
Open banking systems is the buzzword in the financial and banking industry. This technology focuses on improving customer experience in more than one way. Use of application programming interfaces (APIs) is imperative to define how financial data can be created, shared and accessed securely and efficiently. This technology forces the banks to be competitive with their counterparts. Hence, they are compelled to bring down the cost and implement improved technology for excellent customer care experience. This technology requires banks to be transparent with their online and internal banking information, which must be unbiased and accurate. Additionally, it helps lenders to analyze their borrowers’ financial situation and the risks related to it.
3. Rise of Mobile Payments:
Among several digital banking trends and technologies, this one is the fastest growing and evolving. Mobile payments are the talk of the town and it is changing the way money is transferred, deposited and received. This technology became popular in Asia even before it was introduced in the west. Now, banks are adopting this technology to enable their customers to transfer money with ease to their friends and family. Besides, it is one of the key elements in the boom of the e-commerce industry. What makes it a secure way of payment when compared to debit or credit cards, is its ability to keep the information encrypted.
4. Collaboration of Banks and Fintech:
The emergence of Fintech has changed the banking space. Banks are now forced to collaborate with these firms in order to stay in the competition. While some banks have already accepted the change, others are still struggling. The ones that have embraced the new trend, has experienced a few benefits like improved customer experience and reduced operation cost. The partnership between the two must emphasize on innovation, security and risk management. This is the only way banks will be able to keep up with consumer expectations in the era of rising technological innovations.
5. Improved Online Lending:
Fintech has created a competition of sorts for the banks. In order to take the lead, banks are forced to improve their lending services. This means that they are compelled to become faster and quicker in approving loan applications from customers. To provide their customers with a good lending experience, banks are either collaborating with fintechs or improving their loaning systems. Not only that, these systems must be secure and protect the customer and their data. For which, the industry is relying upon multi-factor biometrics and blockchain technology.
6. Rise of Blockchain-related technologies:
Blockchain technology is an emerging trend that began with cryptocurrencies. It operates on the principles of computer science, data structures, and cryptography. Being the key component of the cryptocurrency, it is said to be the future of digital transformation in banking and financial services. The industry is making increasing efforts in the adoption of this technology as it has great potential to eliminate the need of intermediaries for the approval of transactions, improving clearance and settlement systems, creation of a new crypto economy, and making loans and credits a safer space.
7. Chatbots and Robo-advisors:
AI is the future of the banking industry. Through its various capabilities, AI-powered tools are improving customer experience and reducing banks’ burden. Providing financial advice at an individual level has been a challenging task for the banks and financial institutions. Therefore, robo-advisors are expected to play a significant role in providing solutions in wealth management, insurance and banking areas.
8. Big Data:
Data is king when it comes to financial and banking services. However, there must be a way to process it faster and more accurately so that it can be used to improve the services for customers, the efficiency of employees, generate error-free solutions, and thus save money and time. Big data analytics can help banks understand their customer behavior and expectations. Large sets of data can help reveal patterns and trends that play an important role in designing services and products for the clients.
Security and safety are some of the biggest concerns of the banking industry because they are most vulnerable to cyber attacks and hacking. Several top industries are adopting biometric identity verification systems to ensure the safety of their information and other valuable assets. The banking industry is one of the first ones to adopt this emerging technology that is considered to be the most sophisticated security system to date. With the help of encrypted technology and multi-factor biometrics, it is predicted to make banking space highly secure and protect the database from leaks, attacks, and other unethical practices.
Wearable technology or accessories are a part of digitalization in banking. These devices are expected to bring about an enormous change in financial and banking services. Smart watches, smart hearing devices and smart glasses are just the beginning. There is more to come with smart clothing, fitness trackers and shoes. These wearable technologies matter to the banking industry because they are expected to primarily revolutionize the retail banking experience. Customer identity, customer behavioral data, and customer expectations are predicted to be its biggest contribution to the digital banking ecosystem.
Digital Banking is certainly a revolutionary move that aims to digitally and financially empower the people. The technology continues to evolve and so does the banking industry. Every day banks are introducing technologically innovative banking solutions and products that are backed up by advanced technologies like AI, Machine Learning, Blockchain, Automation, and more. Digital banking is all about change, and we must prepare for it.