India has stolen a march on the rest of the world in digital payments. For the Indian bank, the next logical step is to set up digital banking units, in line with the government’s financial inclusion goal and a fundamental transformation of the national economy, with digitalization as the catalyst.
RBI’s guidelines, released following an announcement made during this year’s annual budget for the establishment of 75 Digital Banking Units (DBUs) in 75 districts, offer a roadmap for its regulatory framework in India. It will also facilitate the overall development of digital banking. Conceptualized primarily as specialized business units, DBUs must provide a number of digital banking services and products, at the absolute minimum. All regular commercial banks (excluding regional rural banks, payment banks and local banks) can create DBUs from level 1 (large centers, such as metros) to level 6 centers (population less than 5 000 inhabitants). Digital banking units should offer products and services on both sides of the balance sheet – passive and active, with an emphasis on retail products keeping in mind the demands of the common man.
Loans, checking and savings accounts, mobile and internet banking, debit and credit cards, fixed and recurring deposits, and a host of other services envisioned as self-service or assisted self-service will be deployed by the DBUs. However, digital banking units are prohibited from offering products and services that regular commercial banks are not allowed to offer. These banks should leverage their high-quality interactive capabilities to shift to “tailor-made and structured products”.
According to the RBI guidelines, the establishment of DBU would be an integral part of the banks’ digital banking strategy. The Chief Operating Officer (COO) of a DBU can be chosen from among the senior managers of the bank (scale 3 and above). A DBU is deemed to be open in centers responsible for providing substantial business to the bank, notwithstanding the actual physical location of the bank. All customers, including new era digital customers, will be integrated into a fully digital environment; in addition, banks should foster customer education and awareness of different digital banking services, products and practices. All such Digital Banking Units will be treated as separate units from these “Points of Sale”.
The DBUs will house ATMs, video KYC, video conferencing and calling facilities. As long as these digital banks adhere to the relevant RBI guidelines on outsourcing, DBUs will have the freedom to employ in-house or external models. Guided by their digital strategy, banks can also use core-agnostic digital native technologies that offer greater flexibility and scalability.
Jan Dhan-Aadhaar-Mobile (JAM) trinity, an Indian government initiative to link Jan Dhan accounts, Aadhaar cards and mobile numbers, has helped banks overcome the limitations of physical banking, expanding and accelerating the reach of digital banking services. A strong focus on digital banking is likely to accelerate internal and external bank processes and strengthen process automation.
Digital banking in India has become the preferred banking channel. However, the challenges facing the expansion of the digital footprint of banks in India are considerable. India, with an unbanked population of around 190 million adults, has a staggering number of people without access to credit. The technological and financial constraints of a daily wage earner receiving his remuneration in cash do not exactly match the inclinations of a regular consumer of digital banking. A well thought out strategy may need to be devised to overcome this challenge. Validating data and documents (such as bankbooks) of people on the margins of society has always been a big challenge for credit institutions operating in small towns and rural areas. Additionally, the expansion of banking services into various geographies is likely to come with considerable security risks, with a slew of new attack vectors – in addition to phishing and other long-standing scams – being added for good measure.
Although India is leading the pack, digital banks in advanced economies, such as Singapore, the United Kingdom and the United States, started operations much earlier, around 2014. In developed countries, banks technologies have brought huge efficiencies, reduced costs and significantly transformed many areas. of old world banking. Similarly, India needs to push the boundaries; it is one of the biggest markets for digital consumers and the country’s mobile phone is among the cheapest in the world.
The opinions expressed above are those of the author.
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