Money & Banking

The bank in your pocket is shaking up the industry

KR Srivats New Delhi | Updated on July 18, 2019 Published on July 18, 2019

‘Digital payments still under 10% of total payments’

Indians have clearly taken to digital payments like fish to water. And along the way, they are shaking up the banking industry.

By NITI Aayog’s estimate, a whopping $330 billion worth digital payments were made in 2018 in the country. But digital payments are still less than 10 per cent of the total payments made in the country, say industry observers, who note that the Indian digital journey has just started to mature.

With the value of digital payments set to touch $1 trillion by 2025, banks are bound to face an existential crisis if they don’t adapt.

Of the $330 billion, nearly half was accounted for by NEFT and RTGS transfers, which have completely changed the way people bank. From the era of money orders, there was a tectonic shift in the banking system with the introduction of computers in the mid-1980s.

The platform for digital payments was actually laid in the 1990s, when India went in for the Core Banking System (CBS). It was with the CBS that banks were able to usher in NEFT and RTGS in the following decades.

But the real boost to digital payments came after 2012, when the Department of Financial Services in the Finance Ministry — under former Secretary DK Mittal — took the historic decision of making NEFT/RTGS free for customers for transactions up to ₹1 lakh. No wonder the unified payments interface (UPI), an instant real-time payment system developed a few years ago by the National Payments Corporation of India (NPCI) for facilitating inter-bank transactions, has taken wings in India. Apps are also shaking up banking by rationalising customer acquisition and simplifying customer service.

Neo banks

Can India now leapfrog into neo-banking? A neobank is a bank that is 100 per cent digital and does not operate physical branches. It enjoys two cost advantages — the absence of branches and cloud-based software.

Neobanks are still not a possibility in India. The RBI does not allow the virtual-only bank model or licensing, points out Naveen Surya, Chairman, Fintech Convergence Council, and Chairman Emeritus, Payments Council of India.

But the RBI’s recent measures — such as a regulatory sandbox for financial innovation — are expected to boost financial innovations and force traditional banks to keep marching with the latest technological changes.

Published on July 18, 2019
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