Besides the challenges of slow economic and credit growth and asset quality, another major challenge that banks faced in the past decade was in the form of rapid technological shifts, which has created a host of fintech firms. However, every challenge can be seen as an opportunity and Indian banks have started embracing digital to provide better services to customers, to rationalise costs and to compete with the more nimble footed fintech players. In April 2020, the month of complete lockdown, digital payments were 98 per cent of the total transaction value of payments, and the pandemic will further accelerate the development and incorporation of technology in everyday banking business.

The pandemic has highlighted the importance of maintaining business continuity at a timeof complete absence of physical interaction withdigital the only way forward in this situation. Thus, technology integration of banking services will be the future paradigm in banking. Deepening of digital payments by making it affordable to consumers has already commenced with the RBI waving off charges on NEFT and RTGS. Mobile-based banking now ensures 24x7 services.

In particular, the trend for mobile banking is encouraging. From a measly ₹76 crore in April 2011, mobile banking payments increased to ₹7.04-lakh crore in September 2020. Mobile banking transactions picked up pace in the last couple of years and crossed ₹5-lakh crore in July 2019. In 2020, mobile banking transactions stayed above ₹5-lakh crore for the first three months of the year. However, Covid-induced panic and lockdown saw mobile banking transactions dipping to ₹3.64-lakh crore in April 2020. But it was only a minor blip and the social distancing norms and restricted movement have given an even bigger push to mobile banking than demonetisation, and transactions were at an all-time high of ₹7-lakh crore in September 2020.

If we look at the m-wallet data, there has been a jump in the post-demonetisation period. However, its popularity has declined, and compared to mobile payments, which grew 6x between October 2016 and September 2020 period, they have grown 4x. The m-wallet has been overshadowed by UPI, which has grown by a stupendous 6,774x between October 2016 and September 2020. The latest available data for UPI show that the transactions November 2020 were at ₹3.91-lakh crore. The rapid rise of UPI has been due to features like round-the-clock availability, single application for accessing different bank accounts and use of Virtual ID, which is more secure and requires no credential sharing. If we look at the traditionally present payment modes of cards, the pre-demonetisation data is not comparable as the RBI started publishing the payment system data in new format from November 2019. However, if we compare the November 2019 data and September 2020 data, card payments have not recovered, while the mobile payments have crossed their previous level. This shows that going forward, too, banks have to focus on providing safe, secure and easy to use digital applications for the expansion of their businesses and better customer service.

The RBI has been providing regulatory guidelines for building a more efficient and robust payment and settlement system. A major mode of digital payments, the Real Time Gross Settlement System (RTGS), which was introduced by the RBI in March 2004, grew from just 4.60 lakh transactions worth ₹40-6 lakh crore in FY05 to 134 lakh transactions worth ₹322.8-lakh crore in FY09, excluding the interbank clearing data. The pace has grown rapidly and, in FY20, the RTGS system handled 1507 lakh transactions worth ₹1311.6 lakh crore. With RTGS going to be available round-the-clock, these numbers are going to see further increase. The case with NEFT is also similar, which has seen massive scaling with number of transactions going from 322 lakh in FY09 to 27,445 lakh transactions in FY20.

Interestingly, the RBI policy on Decembe 4 also saw the central bank taking a slew of measures to push digital transactions with better security management and controls. This includes limits on contactless transactions increasing to ₹5,000 from ₹2,000, which will enhance customer convenience in general while benefitting from increased use of technology and enabling posting of settlement files of payment systems on all days, enabling banks to manage funds efficiently. The RBI will also bring detailed guidelines on digital payments security controls to bring security controls in the internet channels. With the number of digital transactions going from 463 transactions per second in FY18 to 1,089 transactions per second in FY20, the digital landscape has truly started evolving. Banks are already moving rapidly towards digital transactions, despite the infrastructural challenges and a few bumps in the road are expected if the rise is so exponential. Specifically, banks have ensured that the wheels of retail lending continue unabated even during the pandemic.

Broadly speaking, the contours of banking in the coming decade will move in two directions. One, services will be more integrated with technology. Second, their reach and span will increase many fold. Banks will nevertheless retain their basic brick and mortar features, but traditional banking will be cater moreto specialised services rather than general services. But banks will have to come to terms with the fact that the era of high credit growth is over. They will have to devise methods to ensure that lending process is fine-tuned and made robust, in line with the complexity that has emerged since 2008.

Thus, deployment of big data analytics and AI will increase significantly. Digital and mobile banking, along with analytics, will allows banks to perform cross-selling and upselling at substantially reduced costs. The Report of Artificial Intelligence Task Force has identified fintech and retail and customer relationship as important areas, where India can use the technology for meeting its development goals. At the same time laws on privacy, ownership of digital data and its storage, and cyber security will also get priority and attain desired clarity.

The writer is Group Chief Economic Advisor, State Bank of India

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