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Digital Banking
The way forward
Ajai Kumar Chairman & Managing Director Corporation Bank

We are living in 21st century, the century which may be called as the dawn of modern India. The last decade of the 20th century was the formative era and was full of reforms in the industrial and financial landscape of the country. The period also witnessed the coming together of world as a single entity as far as movement of trade and services was concerned. While 1991-2000 can be termed as decade of Globalisation and liberalisation of trade and services, the first decade of 21st century can be looked upon as a decade of Information and Communication Technology (ICT) revolution. ICT has now established itself as one of the strongest driving force for BFSI (Banking, Financial Services and Insurance) segment. The banking sector has tremendously benefitted by the use of ICT in terms of: Consolidation of silos of data into centralised Core Banking Providing quick and improved services. Reaching to the masses through financial inclusion. Fulfilling the demands of the next-gen customers. I-banking SMS banking Electronic Payment Gateways Providing value for time to the corporate customers.

become difficult. It has virtually become a tug-of-war among the banks to grab maximum pie of the market share in India where early movers always holds the advantage. On the brighter side of this cut-throat competition banks nowadays are coming up with new and innovative products and services courtesy New Age Digital Banking. Emerging channels in modern day banking Brick and Mortar Branches have always remained at the forefront of the distribution channel in the Banking Industry. So far branches used to be the most convenient and the most accessible platform to avail any banking services obtainable on the block. From banks side branches used to be the primary vehicle to mobilise the business. Now the supremacy of this principle channel has been challenged with the advent of new age banking where standing for hours and hours in long queues to avail basic banking services is the thing of the past. The most effective business model is the one which facilitates minimum possible cost for the maximum possible convenience in the shortest possible time without compromising on security and fidelity. With Youth constituting more than 40 percent of the total population of our country, Digital Banking would be the next big thing on the anvil. For Instance Tokyo based Jibun Bank does business only through mobile phones. It provides services to One million of its customers without having a single branch (Source: Banking Frontier). This model of banking may be a far cry in Indian scenario but the new channels being ushered in by Digital Banking are completely going to metamorphose the way banking is done in India hitherto. CORE (Centralised Online Real-time Environment) has provided a platform for the next level technology driven banking where the banking services are provided in a real time defying all the geographical boundaries. Prior to the introduction of the Core Banking Solution, customer used to do banking with the branch, now with CBS in place customers are banking with the Bank itself. CBS has facilitated anytime and anywhere access to the vital data from the centralised data-centers. With the advancement in technology, especially Internet and Information technology, the day to day functions of the bank can be done more efficiently and resourcefully. CBS provides the platform where communication technology

The list is exhaustive, a better part of which would be covered in detail in the subsequent passages. Digital banking Digital banking is the most exciting buzzword in the contemporary banking industry. In the present economic scenario of rising expenses and shrinking profits, Digital banking holds the key. With the advent of Private and Foreign banks in India post LPG (Liberalisation, Privatisation and Globalisation) era, staying competitive and relevant in the present cut-throat competition has

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and information technology are merged to suit core needs of banking. It allows the user (customers) to operate accounts from any branch if it has installed core banking solutions. This new platform has changed the way banks are working. As a result of implementing Core Banking, most of the facilities being offered by the Bank are available to customers 24 hours a day, 7 days a week. Further, the transactions using these delivery channels are updated in the Central database in real time. Besides, CBS facilitates swifter remittance of funds across Banks through its in-built RTGS & NEFT functionalities. Core Banking enables implementation of BPR initiatives of the Bank and facilitates centralised handling of various processes - for both Assets as well as Liabilities. Cheque Truncation System is another digital initiative of the Reserve Bank of India to convert paper based payment instruments into a digital format for direct processing by the paying Banks. This enables direct processing of the cheque data instead of the time consuming method of collecting, sorting, exchanging instruments and ensuring debit to the customer accounts and to adhere to the return clearing cycles. Cheque truncation enables processing of processing large volumes of cheque data in an electronic format and to ensure direct debit to customer accounts in Core Banking enabled branches. It offers greater convenience to customers as the clearing time can be extended and there can be more number of clearing sessions instead of the present 2 or 3 sessions. For Bankers, all instrument data is captured except the payees name and the date of the instrument and hence reduces the time taken for processing the instruments. As the data is digital data, it can be processed at any location of the Bank without there being a need to be physically sent to the respective branches. Retrieval of information is also easier as large volumes of cheque/instrument data can be stored in less space. With the advent of Smart phones and Tablet PCs, the prospect of mobile banking is all set to get better in the foreseeable future. According to Gartner, 3 million smartphones were sold in the first three months of 2011. This by far is the most number of smartphones sold in a period of time. They provide an adequate platform, from an operating system and infrastructure to security. The encryption standards adopted for mobiles are more or less similar to what we get on a PC. As on May 31, 2012, RBI had permitted 69 banks to provide Mobile banking services to their customers of which 46 banks are live on IMPS (Interbank Mobile Payment Service) as on date. In order to weed out some practical impediments coming in the way of Mobile Banking the Reserve Bank of India has removed the cap of Rs 50,000 per day per transaction through mobile banking. Some of the core areas where Mobile Banking has been excessively used are

Funds transfer (within and outside the bank using IMPS or NEFT) Enquiry services (Balance enquiry/ Mini statement) Alert Services (Both Push & Pull) Request services (cheque book request) Bill Payment (Utility bills, credit cards) M Commerce (Mobile Top Up, Merchant payment)

Future Mobile Banking enjoys an edge over other digital banking counterparts because of its Easy Accessibility. The word mobile per se explains everything. Customer has the luxury of availing almost all the banking services on the move. The other factor is Affordability, with the increased disposable income, the customer now a day can easily afford to buy a smart phone or a tablet also the telecom companies these days are offering economical internet usage packs which make the use of Mobile banking all the more affordable. The factor that is affecting its popularity is Poor Broadband Penetration in India. According to Indian Telecom regulator TRAI, number of Broadband connections in India as at the end of May, 2012 was a meager 14.31 million whereas mobile connection base was 929.36 million. Another factor which establishes the supremacy of mobile banking over other digital channels is the Increase in Generation Y Customer base. With the increasing financial awareness among the youths, more and more young generation customers are availing the banking services. These generation Y customers are further giving fillip to the use of Mobile banking. According to a BCG study done in 2011, Mobile banking which constitutes just about 0.1 percent of transactions, will be the second largest channel after ATM. A significant proportion (2030 percent of total) of transactions could happen via mobile phones by 2020. As the numbers suggest, mobile banking holds a negligible share of the total financial transactions done presently but this channel is all set to make its mark and will become one of the principle delivery channel in the near future. SMS Banking is the next good thing which has evolved along with the mobile banking. Transactions using GPRSenabled mobile phones and SMS alerts are the latest innovations in delivery channels. OTP (one time password) is one of the recent additions which has made SMS a handy tool to communicate with the customer wherever they are. This has eliminated scepticism to a great extent among the users regarding any online transaction. Besides, SMS alerts are sent to customers for all transactions made by them above a specified value. Customers can also request to know their balances and the last few transaction details by sending an SMS. Since

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Transaction vs. Amount Using Mobile Banking In India

any high end smart phone or an i-pad or a high speed internet is not required to avail the benefits of SMS banking it has the potential to take digital banking to the farthest corner of our country and among the masses. Internet Banking is another such channel which has evolved over the last decade and has taken the industry by storm. It has facilitated the banks to make in-roads directly to the customers home. It has helped the scalability of banks and served customers to maintain and manage their accounts without a need to visit the bank. Customers can now process diverse transactions with internet banking. They can view transaction details, transfer funds, pay bills as well as make purchases. Internet banking has further reduced the costs per transactions of banks and is even lower than the cost per transaction done at ATMs. There may be some security loopholes present in the system, as can be seen from the sporadic cases of online theft, phishing attacks and cyber bullying etc, nevertheless leaving all the reservations behind, Internet Banking has taken the Banking Services to an all-new next level. Another such delivery channel initiative in Digital Banking is Mobile Cash Management Service. A fullfledged Mobile Cash Management Service has yet to see the light of the day in India. For a country with one of the highest mobile penetration rate in the world this may not be a distant dream. Mobile Cash Management Service will completely change the concept of receivables and

payables when individuals and corporate customer pay for goods and services in a real time. For this to start, robust technology for mobile phone banking and commerce is actually required, besides a lot of groundwork in tandem with the legal and financial framework needs to be done. Again customers acceptance is essential. It may take a while for customer to completely trust the system. The value and volume of transaction is so large that system in place has to be robust, time tested and error free. This model has already started functioning in many countries where the data is transferred in highly encrypted format from mobile handset to server. Interbank Mobile Payment Service initiated by National Payment Corporation of India (NPCI) is going to transform the way financial transactions are done in India. IMPS is a game changer for an emerging and knowledge based economy like ours. In India most of the electronic transactions are P2P or peer to peer, now days some banks have started offering P2M or person to merchant facility as well. IMPS has also enabled real-time transfer of funds through the medium of the mobile phone between accounts in different banks, 24 x 7 and 365 days of the year. The security of the system can be vouched upon as there are three levels of authenticationthe first one being the mobile number, the second level being the mobile application password and the third being the MMID (7 digit mobile money identifier). So the customer can trust the system in order to confidently make any financial transaction.

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Business Correspondents (BCs) Model emerged as an instant solution where unbanked and under-banked customers are brought within the banking domain. Under this model a single person with a hand-held device can provide basic banking services to the places where it is financially unviable to open brick and mortar branches. This low cost model can work wonders as far as inclusive banking is concerned. In the country where almost 50 percent of the total population is still unbanked, Digital Banking can only provide ready solutions for a low cost banking model like BC to speed up the Financial Inclusion program. Virtual Banking has to still cover a long journey to fully take shape in the Indian Banking Scenario. Virtual Banking is Multimedia technology that has been quite effective in bringing banking services to the doorstep of its customers. The customer-activated terminal (CAT) or self-banking kiosks provides an interactive multimedia display unit, housed in a small enclosure, which typically consists of a computer workstation, monitor, video disk player and a card reader. It enables customers to browse through the information and use the available banking services. While customers get the convenience of 24X7 banking, the bank saves in heavy real estate and manpower costs when compared to establishing a branch. New initiatives in product-offerings through digital banking Card-less Cash is one such technological initiative which has the potential to leapfrog the scope of Digital Banking in India. This facility allows its customers to withdraw cash from ATMs without using their ATMs/Debit Cards. The customers will be required to download the banks free application onto their mobile phones for this purpose. Through this application a one-time password would be generated and requisite amount can be withdrawn using the password. The withdrawal code would pop up only after the user taps the screen. This prevents shoulder surfing and make such transactions safe. ATM maker NCR has developed software that allows people to scan a barcode on their smartphone at an ATM to release an amount entered in their smartphone. Similarly Fujitsu has developed a palm-scanning biometric technology to make cash withdrawals. In this technique individuals unique vein pattern is used to check the identity of the customer. Card less ATM technology will help banks in saving the cost of printing the cards and at the same time reduce ATM related frauds even as the queues at for the cash withdrawal at the bank branches can be reduced considerably. In order to have an inclusive growth, a new concept of Talking ATM has been introduced recently. This ATM is specifically designed for visually impaired persons in order to perform the financial transactions on their own.

Trends in payment As per the world payment Report 2011 e-payments and m-payments collectively accounted for an estimated 22.5 billion transactions in 2010. Cheques constituted 22 percent of all non-cash transaction in 2005 and declined to 16 percent in 2009. The global volume of non-cash transaction grew by 5 percent IN 2009 to 260 billion. Globally non-cash transaction (direct debits, Credit transfers, cards and cheques) expanded at a compound annual rate of 6.8%during 2001-2009 (Source: Banking Frontiers). ATM usage has exponentially grown over the recent years however still a lot is desired before this channel can be said to be fully matured.Automated teller machines have reduced costs per transactions to almost one-fourth as compared to the branches. ATMs support a variety of transactions such as cash withdrawal, cash deposits, cheque deposits, placement of service requests, including the request for a new cheque book. New technology has facilitated the installation of in-wall ATMs, which are weather-proof and can be established in shopping malls or busy commercial localities and have further reduced the transactions and operations costs for banks. Providing banking services to entire cross-section of India is no small deal, where cost benefit analysis being the main factor behind every move. India being a vast country, there was a need felt for a feasible delivery channel which can provide banking services to the remotest of the remote place without putting stress on the balance sheet of the bank.

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The ATM would provide audio commands through a head phone connected with the ATM Machine. The screen would turn blank during the operation so that no one does shoulder surfing. The ATMs are so designed so that a person on wheel chair can enter the ATM room conveniently. This is an attempt to ensure that no one should be left out in reaping the benefits of the digital banking. Electronic Money is money or scrip that is only exchanged electronically. Typically, this involves the use of computer networks, the internet and digital stored value systems. Electronic funds transfer (EFT), direct deposit, digital gold currency and virtual currencies are all examples of electronic money. A number of electronic money systems use contactless payment transfer in order to facilitate easy payment and give the payee more confidence in not letting go of their electronic wallet during the transaction. Electronic Bill Payment has eased the way financial transactions are made in India to a great extent. It provides the feature of online banking and telephone banking, allowing a depositor to send money from their demand account to a creditor or vendor such as a public utility or a department store to be credited against a specific account. The payment is optimally executed electronically in real time. Electronic Bill payment facility not only saves the time and energy of the user but also brings down the cost factor. Now days various government agencies have also started accepting the epayments. This has streamlined the government revenue collection mechanism even as the routine bills payments is no more a tedious job for the consumers. Stored value prepaid wallets are being experimented in a large way in India and it is believed that prepaid-based mobile wallets can drive financial inclusion. High mobile penetration further adds up to the prospect of prepaid wallets. This feature is being used to convert mobile devices to POS (point of sale) in inaccessible areas. Technology has bridged the gap between rural and urban populace. Through these initiatives huge potential lying in the rural market can be tapped. The processor type Smart Cards with built-in integrated circuits (ICs) or microchips offer a wide range of transactional opportunities even from remote areas. Smart cards are extensively used for transactions such as cash withdrawals from ATMs, payment of bills and online purchases. The concept of Virtual Banker has further added a new dimension in Virtual Banking model. Under this, a customer will be able to interact with a pre-loaded programme uploaded in the self-help kiosk. Through this the basic queries of the customer can be solved without any human intervention. The customer can avail the

service 24X7,without any time limit of banking hours. Instant assistance can be sought at a minimum cost through a virtual banker. This will not only cut the cost of the banking but will also add-up on the customers delight. Electronic Data Interchange typically denotes paperless financial transactions across the locations within the banks and with customers. EDI is fast becoming a norm for intercompany transactions as well as for the procurement of items bought from suppliers. For example, the account opening, the forms and documents are scanned and sent to the centralised operations unit of the bank to facilitate speedy account opening. Banks in Singapore allow electronic submissions by clients by uploading documents and establishing trade net, which reduces the delivery time from days to minutes. Image Processing as financial services, including capital markets and banking, are highly document intensive, image processing technology can have a far-reaching impact for such applications for its less-paper characteristics. Image technology in banks can be used for automatic identification or character recognition to read text and diagram wherein the cheques or documents can be scanned. Business intelligence and customer relationship management applications have further strengthened the relation between the bank and its customer base. Many banks have strengthened their focus on customer service and have implemented Business Intelligence (BI) and customer relationship management (CRM) applications in the Organisation. Many banks have launched their android application in order to come a step closer towards their clientele base. The data provided by such applications not only helps to know their bank better but also gives an opportunity to the banks to analyse the need based preferences of the various customer segments. Biometric Smart Card provides automated methods of identifying or authenticating the identity of a living person based on unique physiological characteristics. Biometric technologies have provided an added level of security feature which is practically un-breach able. This technology is a boon for millions of uneducated persons who have remained outside of banking ambit due to their illiteracy. This may prove helpful for old-age customers also who can be identified as a genuine beneficiary of various schemes run by Centre or state governments meant to improve their living standards. So in this way Digital Banking is working as an interface between the masses and the new generation advanced technology. Apart from this, Biometric Smart card can bring down the transaction cost also as the self-service kiosk can be established rather than manning a dedicated counter for providing the same service.

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Curb on black money in the economy Digital Banking facilitates the containment of Black Money flowing in Indian Economy. The RBI is progressively pushing for non-cash transaction in order to stem its flow. Millions of ill-gotten money accumulated through various nefarious sources enters in to the market that dilutes fundamentals of the economy. Digital Banking promotes the exchange of electronic form of money that not only cut the transaction cost but also leaves a trail for traceback and also helps to weed out the flow of unaccounted money. Role of social media in digital banking Social media/networking sites like Facebook, MySpace, LinkedIn, Orkut and Twitter have grown leaps and bounds in the recent time. Facebook alone is believed to have 800 million and odd users, of which more than half are active users. According to an estimate its users are set to cross 1 billion mark sometime soon. The banks need to look beyond the mere networking capabilities of the social media, and use its wide base to closely connect with its existing as well as prospective customers. This may also be utilised to make elaborate analysis on customer behavior, which enables them to offer tailor-made products and customised service to its customers. Bank could overlay their basic data with other information of

interest to customers, pertaining to Wealth Management, Foreign Exchange, Mortgage or Insurance services et al. The bank can also start to offer banking services on Facebook, by creating a virtual branch on the Social networking site; this would allow its customers to discuss their account related matters through their Facebook accounts, which would be further transferred to the concerned department or the branch. A similar model has already been introduced by ASB Bank of New Zealand. Around 13,000 people had downloaded its application within a month of the launch and started using it. Summing up As they say Rome was not built in a day, Digital Banking will also take its due course to wholly evolve in Indian Scenario. Industry as a whole has endeavored to come up with innovative product-offerings backed by robust Digital Banking platform. We cannot go on to replicate all the new banking models which are currently prevalent in the developed countries, as the our regulatory framework, demographic pattern, financial requirements, infrastructure available and spending & saving traits etc. are poles apart from these developed countries; Rather Indian Banking industry can strive to build a strong edifice on the rock solid foundation of the Digital Banking laid in the last decade.

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