The RBI’s action last week in asking HDFC Bank to stop sourcing new credit card customers and to halt digital business generating activities until it addressed the gaps in digital infrastructure, is a welcome sign that the central bank is taking note of the difficulties being faced by customers of this channel. It is hoped that this is a precursor to similar actions against other financial entities involved in digital payments, which have been making the most of the rapid growth in business without possessing the required infrastructure to support the expansion. The central bank’s action against HDFC Bank was due to certain glitches and outages in its internet banking, mobile banking and payment utilities over the past two years, including the recent outage in the bank’s internet banking and payment system on November 21, due to a power failure in the primary data centre. The RBI Governor is right in saying that lakhs of customers of digital banking cannot be allowed to be in difficulty for hours together, especially when the central bank is laying so much emphasis on digital banking.
The central bank should, however, take note of similar lapses by other banks too. Recently, State Bank of India’s YONO app had also witnessed technical glitches for more than a day with users unable to login or transact. Customers of other banks have also faced frequent glitches and outages in digital channels in recent months. This is, however, not surprising given that these transactions have grown by leaps and bounds over the last eight months, as the movement restriction and fear of infection from the coronavirus have made customers take to digital channels for all their transactions. Value of transactions through UPI increased 89 per cent between April and November this year, while amount transacted through Bharat BillPay was 90 per cent higher. This surge in volume is creating problems for banks’ core banking system as these transactions are small in value, though the numbers are large. These transactions are expected to increase further; a recent report by Accenture estimated that in India transactions worth $270.7 billion are expected to shift from cash to cards and digital payments by 2023 and to $856.6 billion by 2030.
It is therefore obvious that banks, NBFCs and other financial entities have to invest more in their IT systems, upgrade the technology in order to meet rising customer expectations and make the systems robust so that they retain the trust of the public. It is good that the RBI is proposing to issue Digital Payment Security Controls Directions, 2020 for ensuring stronger security controls for channels like internet, mobile banking, card payments, among others. But the central bank should also consider conducting a comprehensive review of the existing IT backbone supporting the digital payment channels of all financial institutions, to gauge their ability to meet the expected surge in usage in the coming decade. Piecemeal action against individual banks may not really serve in making all entities fortify their IT systems, before trying to garner a chunk of this growing pie.