Introduction to Digital Banking

Introduction

Mr. Ramcharan,72, was sitting relaxed on a Sunday afternoon when he remembered that he had forgotten to pay the electricity bill and it
was already the last day. He wondered what to do as the electricity board office was closed that day.

His granddaughter, Kanika, told him that he could pay the bill online from the
comfort of his home. Mr. Ramcharan was astonished to hear this.
He was not aware that payments could be made digitally.
He asked his granddaughter to tell him more about digitalisation and digital reforms
in banking.
His granddaughter told him that digitalisation is using digital channels like ATMs,
mobiles, laptops etc., to perform financial and non-financial banking transactions.
Mr. Ramcharan wanted to know more about the same. Kanika agreed to explain the
same in detail to her grandfather.

In this unit, we will understand the digital journey of banking, the innovations and how digitalisation takes care of every
financial need of the customer.

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Learning Objectives

At the completion of this unit, you will be able to:

• Outline the journey of banking

• Explain the innovations in banking- desk to digital
• Explain the digitalisation of all financial needs
• Underline the benefits of digitalisation
• Cost-Benefit Analysis

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Introduction to Digital Banking
Journey of Banking
Banking in India has transformed enormously since its inception. It was in the 1980s that banks felt the need for computerisation which
picked up mainly because of foreign banks. Banks started to use LAN (local area network) at that point in time. RBI too set up a committee to
study the computerisation of banking.
Let us now see the digital journey of banking in India over these years. UPI

PPI & API

NACH

IMPS

CTS

Core Banking Solution

Internet Banking

ATM

MICR/ ECS
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Introduction to Digital Banking
It was with computerisation that banks introduced MICR and ECS. MICR stands for Magnetic Ink Character Recognition.

The cheques could then be sorted using codes. After MICR, cheques could get cleared in 3 days. With the
advent of CTS in 2008, cheques can now be cleared in a day. ECS (Electronic Clearing Service) was
previously used for making repetitive, bulk, and interbank transactions

ECS has now been replaced by NACH (National Automated Clearing House). NACH is an enhanced/better
version of ECS; it is also used for transactions which are interbank, repetitive, and bulk in nature( but much faster
and with lesser errors).
HSBC was the first bank to introduce ATMs in India in 1987, but the internet is the biggest revolution in the
banking industry.
It was the world wide web which revolutionised the banking sector. With the onset of computers, banks started
to invest in internet services and thus came internet banking.
This enabled the customers to make transactions through the website of their banks. The introduction of www
brought a paradigm shift in the banking industry. ICICI Bank was the first to introduce internet banking.

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Introduction to Digital Banking
After internet banking, banks were able to lay down CBS (Core Banking Solutions), resulting in RTGS and NEFT.
Core Banking Solution refers to a centralised system established by banks which allows customers to conduct their business irrespective of
the bank’s branch, enabling “anywhere” banking for customers.

In 2008, RBI formed its umbrella organisation, NPCI, responsible for operating retail payments and
settlement systems in India.
NPCI has revolutionised the Indian Banking System by introducing many products like UPI, Bharat Bill
Payment System (BBPS), IMPS etc., to India.

With the IT boom and so many fintech companies growing in our country, many other technological
developments also led to enhanced and better banking experiences.
API and PPI are two such technologies/ products.

API (Application Programming Interface) is a software intermediary that allows two applications to talk to each other.

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Introduction to Digital Banking
Let us imagine that you’re booking an Indigo flight on MakeMyTrip.
In order to book the flight, MakeMyTrip interacts with the airline’s website to access their database and see if any
seats are available on those dates and what the costs might be.
This sharing of data between two platforms is possible because of API.
We can now book airline/movie/bus tickets on iMobilePay (mobile banking app of ICICI Bank) because of API.

PPIs (Prepaid Payment Instruments) are instruments that facilitate the purchase of goods and services, conduct of financial services, enable
remittance facilities, etc., against the value stored therein. Debit cards, Cheques, and Wallets are examples of PPIs.

There are two types of wallets:

i. Open Wallet: Can be used on third-party portals, e.g., ICICI Pockets, HDFC PayZapp, PayTM
ii. Closed Wallet: Cannot be used on third-party portals, e.g., Myntra credit, MakeMyTrip wallet etc.
The most recent innovation in banking has been UPI which received a sudden boost due to
demonetisation. UPI stands for Unified Payment Interface. UPI has enabled us to link all our accounts
to a single UPI app using our registered mobile number.
(NPCI, CTS, NACH, RTGS, NEFT and UPI will be covered in detail in the next module).
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Introduction to Digital Banking
Innovation in Banking

The role of Banking has changed drastically over the last two decades.
It has been going through a never-before transformation, adapting to new technologies and products of global standards and becoming a part
of the International Financial System.
It can be seen and realised that major technological and product innovations have taken place in the past two decades in India, promoting
various schemes and new technologies.
The entry of foreign and private players in India after the Liberalisation, Privatisation and Globalisation in 1991 has made this industry
tremendously competitive in nature.
Even now, banking is one of the fastest-growing sectors in the economy of India.
During the last 20 years, Indian Banking System has witnessed some major financial innovations with an aim to take banking services from
class banking to mass banking.
Today, banks aim to provide their customers with a fast, accurate and quality banking experience.
Today, the topmost agenda for all the banks in India is digitalisation.

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Introduction to Digital Banking
Why Digitalisation in Banking?
Now that we know that the banking industry has seen a phenomenal digital wave in the last 10 years let us try to understand the reasons for
the same. One of the most important reasons for digitalisation was customer behaviour and trend.
More customers are now using various digital platforms for various purposes. Be it purchasing groceries, clothes, furniture or ordering food.
Other factors such as demonetisation, growth of the millennial segment, IT boom and smartphone penetration… all these factors have made
us turn DIGITAL!!
Digital is Pervading across all customer segments

Large Scale Health &

Digital Payments OR Online Food
acceptance of social Online Shopping wellness(Mobile
QR Code Delivering
media using Senior Ci

Tech savy customers

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Introduction to Digital Banking
With everything around us becoming digital, even banking could not be far behind. Customers today prefer convenience in banking. To
enable the same, banks have been introducing various digital channels: both DIY (do it yourself) and DIM (do it for me).
ICICI Bank has been the pioneer of many digital revolutionary products in the country. We shall discuss those products in detail later.
Changing Trends in Banking

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Introduction to Digital Banking
Desk Banking to Digital Banking

Do you remember your monthly visits to the bank as a kid?

You will be able to recall long queues, files and folders on every
desk, and the smell of cash and clutter.
Compare the bank then with the bank now.

Earlier, the role of the bank was confined to providing financial services to customers.
Now with the advent of digital platforms, customers can do transactions at their own convenience.
Hence, the role of the bank has also changed from just providing financial services to becoming
financial advisors/ financial enablers for the customers.
Banking has seen a paradigm shift in all these years. Digitalisation has changed the way India banks.

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Introduction to Digital Banking
Be a Digital Banker

Branch Banking Transformation

• Transaction processing • Digital Migration

• Manual reporting • Self service
• Voucher management • Affluent focus
• Physical processes Traditional New Age • Advisory services
Banking Banking
• Constraint of Banking hours • Digital Sales
• Low Reach • 24x7 access to banking

Customer Self Digital & Financial Sales and Financial Complex query
Service Education @ branch Advisory resolution

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Introduction to Digital Banking
Importance of Digital Migration for Bank
As digital bankers, we are responsible for ensuring that every customer is onboarded digitally. Every customer interaction must always start
with a digital pitch.
Below are some of the benefits of digital migration.

Increase Efficiency and Increase Customer Engagement

Productivity time

Improve sales Opportunity No Paper Work

Building Digital Culture

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Introduction to Digital Banking
Impact of Digital Banking
Digitalisation has helped the bank transform in various ways. It has helped us provide better services to our customers, manage/track
transactions, reduce errors, reach out to more customers, increase sales, and reduce costs for the bank. Below are some of the benefits of
digitalisation to the bank:

Audit
• Devoucherisation Sales
• Risk Mitigation • Crate Capacity
• Enhanced Control • Maximize Sales

Service Process Cost Reduction

• Improved NPS • Paperless Transaction • Increased Efficiency
• Service Consistency • Decongestion • Reduced Cost
• Reduce Rework • Automated Process

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Introduction to Digital Banking
Cost-Benefit Analysis
Digitalisation has drastically reduced costs and helped generate revenue/income through various channels. Also, with less customers visiting
the branch, the staff can focus more on enhancing customer relationships, thus providing better service and increasing sales and revenue.
Banks in India can reduce costs by up to 50 percent per transaction in the next few years by redesigning their processes and systems for the
digital age.
With banks rapidly improving their footprints and reducing branch size and costs, they are introducing new models and migrating to low-touch
digital channels.
For example, during demonetisation, people preferred UPI to cheques. The costs were reduced dramatically for the banks.
ICICI bank spends close to 300-400 crores annually on customer sourcing. It involves costs incurred on the call center, sales agents, branch
etc. The assisted models devised by digitalisation can bring these costs down considerably.
The customer acquisition cost has collapsed due to the power of digitalisation; the banks can now sell small, customised products. This can
be understood better with the below example:

Type of transaction Branch ATM Internet Mobile

Cash Rs 70- Rs 75 Rs 15-Rs 16 Less than Rs 2 Less than Rs 1

This is the cost incurred by the bank for the same transaction done through different banking channels.

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How Do You Apply?
Ms. Sushma, 74 years, receives a monthly rent of Rs 1 lac. She visits the branch to apply for FD and transfer
money to her son's account.

Since she is not in the best of health, she wants to know if you can send someone to her house every month
to collect a transfer cheque. You are an RM in the branch, and she approaches you for a solution.

• What solution would you provide to this customer?

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Check Your Understanding

1. __________ was the pioneer of digital banking in India

A. ATM
B. Internet Banking
C. Mobile Banking
D. Digital Wallets

Correct Answer is: ATM

Justification: ATM was the pioneer of digital banking in India and was first introduced by HSBC Bank.

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Check Your Understanding

2. _________ enables you to book train tickets on iMobilePay app.

A. CTS
B. ECS
C. API
D. Wallets

Correct Answer is: API

Justification: APIs interconnect two softwares

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Check Your Understanding

3. Digitalisation does not aim at: .

A. Reducing risk for the bank

B. Increasing transaction costs for the customers
C. Increase efficiency
D. Helps give better satisfaction to customers

Correct Answer is: Increasing transaction costs for the customers.

Justification: Digitalization does not aim at increasing transaction costs for the customer. Instead, it helps reduce costs for both the
bank and the customer.

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Summary
In this session, we have discussed on:
1. Digitalisation is the process by which we do our day-to-day activities using our phones, laptops or tablets.
2. Digitalisation was needed because of the increasing use of digital channels in our day-to-day lives.
3. Indian Banking System has witnessed some major financial innovations with an aim to take banking services
from class banking to mass banking.
4. Digitalisation has helped increase efficiency and customer satisfaction and reduce costs for banks.

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Disclaimer

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