Time to strengthen digital banking

G Krishna Kumar | Updated on January 26, 2021

Making the NEFT system foolproof, ensuring customers of merged banks are not deprived of digital services, and mandating OTP for even cash withdrawals are among steps that need to be taken

India’s growth in digital payments must be lauded. There was a 55 per cent increase during the pandemic year 2020 compared to the previous year. Over the past 2-3 years, Indians have had multiple options for digital transactions, such as BHIM UPI (Unified Payment Interface), wallets, credit/debit cards, RTGS and NEFT. UPI saw an 80 per cent increase in transactions to two billion transactions in October 2020 compared to October 2019. NEFT (National Electronic Fund Transfer) transactions increased from ₹172.22 lakh crore in FY18 to ₹229.45 lakh crore in FY20.

According to a recent report, the digital payments sector is projected to grow to $1 trillion by 2023. Although India has been quick to adopt mobile technologies, such unprecedented growth in digital banking transactions was never expected. Thanks to digital banking, the footfalls in banks have steadily declined, by around 50 per cent over the past three years. Also, Covid-19 has accelerated digital adoption as many fence-sitters were pushed towards digital transactions.

India’s banking regulator, the RBI, must be appreciated for taking proactive steps to safeguard the interests of the general public. For example, the RBI recently cautioned individuals against taking loans through unauthorised digital lending apps. The apex bank alerting the public not to fall prey to companies/apps that promise quick loans is a step in the right direction. However, there is an urgent need to strengthen many aspects of digital banking.

Strengthen NEFT

For those who want to transfer money from one bank to another bank using NEFT, the first step is to register the payee. The current system does not check if the payee or recipient details like account number, IFSC code and name entered are accurate. The RBI must insist on these checks so that the information entered during payee registration is validated. A process similar to validation done during UPI fund transfer should be implemented.

It is appalling that the NEFT system does not check the IFSC code (branch code) or the payee name during the transfer. Hence if a wrong account number is entered during payee registration, the amount will be credited into some other individual’s account.

Again, such issues will never occur if the payee details are validated during the payee registration process. As a second check, if there is any mismatch in the payee details, the transfer should be terminated and the sender intimated.

While most of the unintended recipients alert their banks and the money is returned the sender, the present system allows the rest of the unintended recipients to make quick money and abscond. If the unintended recipient is in another State, it just makes the whole process of recovery complicated.

24x7 support

Thanks to the RBI, NEFT and RTGS are available 24x7. However, the support system and infrastructure for these are largely missing. Attempts to contact via phone or website/email for help are often futile. Meaningless automated email response stating that the issue will be taken up within 48 hours does not help anyone.

There is an urgent need for the RBI to mandate the banks to provide resolution within an SLA (service level agreement) of 30 minutes or 60 minutes.

Over the past few months, several public sector banks have been merged. While this helps make the merged banks’ financial position stronger, the account-holders suddenly find themselves in a spot as most the digital banking functionalities fail. Strangely, the banking staff attribute mergers as the main reason for the issues faced by the customers.

Perhaps, the RBI should audit the merged banks and ensure actions are taken on a war footing to fix this. The RBI should also conduct a survey of the customers impacted by merger and identify the pain areas. Also, going forward, the central bank should mandate seamless digital banking experience for all the merged bank account-holders, failing which penalties must be imposed on the erring banks.

Fraud prevention

India has pioneered mobile OTP-based digital transactions. It is important that the RBI mandates OTP based cash withdrawals for additional security. In the age of technologies such as Artificial Intelligence and machine learning, banks can easily identify anomalies by monitoring transactions. This can help in providing an early-warning system.

As India moves rapidly towards digital banking, the RBI should publish a half yearly or annual list of banks which have implemented the best anti-fraud systems and banks that provide the best digital user experience for customers with 24x7 support.

It is time for the government and the RBI to consider end-users’ perspective and strengthen digital banking in the country.

The writer is an ICT professional and columnist based in Bengaluru. Views are personal

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Published on January 26, 2021
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