International Journal of Virtual Communities and Social Networking

Volume 10 • Issue 1 • January-March 2018

A Study of Digital Payments:

Trends, Challenges and Implementation
in Indian Banking System
Narinder Kumar Bhasin, ASIBAS, Amity University, U.P., Noida, India
Anupama Rajesh, ABS, Amity University, U.P., Noida, India

ABSTRACT

The challenges and emergence of a global economy and a Digital First World has created financial
disruptions in e-commerce and e-business around the globe. The collaborations of banks with Fintech
companies have led to digitalization being an important component of their business and marketing
strategy. The application of e-banking has been demonstrated as an effective cost reduction, risk
management and provides quick services to the customers. Nowadays, e-banking services have already
ensured opportunities to reduce expenditures on physical structures. However, in some previous
studies it has been showed that e-banking has helped banks and financial institutions to reduce costs,
increase revenue, and increase customer experience. With the growth of digital banking in India, it is
significant to analyze the actual situation of customer satisfaction in the banking sector. This article
evaluates the various new digital banking technologies in the banking sector of India which have
gained momentum after various banking reforms like the digital financial inclusion, demonetization
and GST implementation. It also identifies the relationship between the increasing trends in the
usage of electronic banking and a customer paradigm shift from traditional cash and paper-based
cheque payment systems and evaluates various challenges and opportunities in the implementation
of digitalization. This research was carried out using multiple methodologies.

Keywords
Digital Banking, E-Banking, Mobile Banking, Payment Systems, Risk Management

1. INTRODUCTION

Indian Banking System is passing through the phase of digital disruptions and this digitalization
is not a new buzzword in the Indian economy as it was happening for a long time .The traditional
ways of banking starting moving to e-banking with introduction of card payment systems way back
in 1980s when the Central Bank of India being a first with public sector bank launch credit card
known as Central Card. HSBC was the first bank in1987 to launch the first ATM and in 1996 ICICI
bank started internet banking for the customer’s transactions. The digital revolution started with the
introduction of mobile banking in 2002 by ICICI Bank by the way of SMS banking. Internet and

DOI: 10.4018/IJVCSN.2018010104

Copyright © 2018, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.


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mobile banking have played an important role in the shift of customers to digital finance with benefits
of speed, convenience, transparency, reach and removing geographical barriers. The major issue and
challenges was the growth and the pace of adoption of these Electronic / digital banking products by
customers was slow for two important reasons, one financial literacy & low awareness and second
people are more comfortable with cash transaction because of lack of trust due to perceived risk.
Digital disruption is a change that occurs when new digital technologies and business models
affect the value proposition of existing goods and services. The rapid increase in the use of mobile
devices for personal use and work, a paradigm shift sometimes referred to as consumerization of IT,
has increased potential for digital disruption across many industries. Reserve Bank of India, NPCI,
Government of India, Ministry of Finance took various initiatives to shift the focus of the banking
customers from traditional ways of banking to digital banking products. RBI and NPCI started these
digital disruptions in Indian banking industry with introduction of Payment and Settlement Act, 2007
for supervision and regulation of various payments and monetary settlement of business transactions.
Cheque truncation system (CTS) was introduced by RBI in 2009 to reduce the physical movement of
the cheques to the image-based cheque clearing system where electronic image is transferred to drawee
bank. The major benefits of CTS are faster speeds, reduced costs of encoding, physical movement
and reduction in times for collection. The National Payment Corporation of India was founded in
2008 and registered under Section 8 of the companies act 2013. NPCI is not for profit and umbrella
organization responsible for smooth and efficient operations of payment and settlement systems in
India. Real-time gross settlement (RTGS) in 2004 as high value gross settlement electronic funds
transfer (for transactions above Rs. Two lacs) and National Electronic Funds Transfer (NEFT) in
2005 as deferred net Settlement (DNS) for any value is settled during the day in batch processing
system. NPCI introduced the National Automated Clearing House (NACH) in 2016 to replace and
consolidate multiple electronic clearing services into one centralized clearing system. The major
benefits of NACH was reduction of activation time and cost, digitalized mandate, simple procedures
and standardized procedures in all the clearing houses in India.
Government of India, RBI and NABARD has played an important role in achieving financial
inclusion in India. Success story of PMJDY was a Revolutionary financial inclusion scheme launched
in 2014 have achieved 32.99 crore beneficiary, 86480 crore deposits and 24.74 Rupay debit cards to
beneficiaries as on 17th October 2018. The short supply of high value denominated currency during
demonetization period lead to an increase in the level of payment digitization. Awareness on usage of
debit and credit cards at ATM for cash withdrawal as well as for shopping at point of sales including
card and e-wallet increased. However, even during the re-monetization when new currency was back
in the economy, the volume of digital payments came down but still the demonization has paved the
way for the customer’s habit of usage of electronic payment systems. Promotion of cash less society,
reduction of usage of cheques, and change in the habits of customer’s in faster adoption of electronic
and digital payment instruments have opened new windows of opportunities for Digitalization and
Fintech companies. Figure 1 shows the Technology Developments in Indian Banking Sector.

2. LITERATURE REVIEW

Poddar, Erande, Chitkara, Bansal and Kejriwal (2016) in their study assessed that companies on digital
platform found that 42% were using bank’s digital offerings and are satisfied, 7% companies said that
they were using digital products but not satisfied, 35% said that they were aware but not using and
7% companies were not aware. It is important to note that once the digital is adopted by companies
and when they start using in day to day operations, their satisfaction level increases.
CII - Deloitte Report (2016), banking on the future, Vision 2020 focuses on the five critical
factors for the successful model of Bank Fintech Partnerships. These five factors are scalability,
vision, product life cycle, trust and buy vs build. Banks partner with Fintech Companies as well as
create products of similar nature in-house. Bank Fintech Collaboration takes the form of Innovation

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Figure 1. Technology developments in Indian banking sector (Source: ICMAI JAN 2017)

Initiatives, Investments and Partnerships. Few examples are - HDFC Bank has partnered with Tonetag
and Chillar. Axis Bank has partnered with Vayana network, Faastcash (Ping Pay) and Paynear. State
Bank of India has partnered with Ezetap, Uber, Bankbazar and Snapdeal:

• KPMG Report (2017) - Banking on the Future: Mr. Daniel Knoll Partner and Head of Financial
Services Consulting, KPMG said “Gen Y expect any interaction to happen ‘instantly’ and as
smoothly as possible. The seamlessness offered by many apps are the new norm, and set a high
benchmark for mobile customer experience. This study suggests that Digital continues to be
the most preferred and highly coveted banking attributes. Out of 10, 7 most important bank’s
attributes relates to cost and digital. Ten Bank’s attributes for Gen Y Professionals are internet
banking services are Mobile tablet banking services, low account fees, No ATM fees at any bank,
Convenient ATM locations, Competitive interest rates, Ease of accessing funds when traveling,
low international transaction fees, innovative product services and reward program. Mobile and
Tablet Banking attributes has become the number two most valued attribute of bank with top
position held by internet banking;
• Niti Aayog Digital Payment Booklet (2018 Edition): Highlights the opportunities and growth of
digital and mobile banking in India. Based on the five important Electronic and Digital Payment
systems – On line Spends, IMPS, UPI, ECS / NACH, the report estimates that mobile payments
will grow to US$ 190 Billion by 2023 from existing US$ 10 BILLION in 2018. The Mobile
payment growth will further lead to overall growth of digital payments to US$ 1 trillion. Google’s
payments app, Paytm—which has 7 million merchants (>2x the banking system), Google Tez
and PhonePe are few examples focusing on merchant payments and digital solutions;
• RBI Report of the Working Group on Fintech and Digital Banking (2017) studied the five
categorization of Major Fintech Innovations: Payments, Clearing and Settlement, Deposits,
lending and Capital Raising, Market Provisioning, Investment Management and Data Analytics
and Risk Management. This categorization was based on the areas of financial market activities.

2.1. Objective of the Study

1. To examine and study the major trends in Digitalization and Role of FINTECH Companies in
Indian Banking System;
2. To study the various existing paper based as well as electronic / digital payment systems in India;

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3. Comparative study of usage of increasing volumes and values of retail electronic payment systems
in India for the period 2013-14 and 2017-18;
4. To analyze Various Opportunities and Challenges in Implementation of Digital Banking Payment
Systems in India.

3. RESEARCH METHODOLOGY AND RESEARCH DESIGN

This Research study is based on the Secondary data collected from the existing literature on
the related themes, various research papers, banking journals, newspapers, reports, websites
and interviews. Retail electronic payment system data has been collected from RBI Monthly
Bulletin and NPCI Websites. Context and research design of this study has been organized
into following three sections– evolution stages, existing payment systems and trends of digital
banking in India, comparative study of increasing adaptation of digital banking in two periods
of 2014-2015 and 2017-2018. A review and brief analysis of existing select studies is presented
in literature review, and challenges and issues of implementation of digital banking in India.
Figure 2 shows the online banking system.

3.1. Evolution Stages of Indian Payment System

and Trends of Digital Banking in India
The journey of Indian banking payment system has a long history of three decades when it moves
from manual clearing of physical cheques to magnetic ink character clearing system (MICR) in
the 1980’s. The benefits of MICR were to reduce frauds and enhance security features to reduce
forgeries and minimize the losses. Reserve Bank of India in 1988 set up Rangarjan Committee
for computerization in order to meet the ever-increasing customer demands for improving the
timelines, MIS reporting and bookkeeping. Prof Bhatacharya and Pradhan (2017) studied Bank’s
moved on to IT Platform of standalone PC’s to core banking systems thus achieving customer
satisfaction and convenience of anywhere and anytime banking. Different Banks started using
different core banking software’s like Finacle, BaNCS and Flex cube provided by Infosys, TCS
and I-FLEX respectively.

Figure 2. Online banking system (Source: Shutterstock, Forbes India)

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3.1.1. Four Stages of Evolution of Indian Payment System

It’s very simple to define the term “Payment” as exchange of money for goods bought or sell when
any commercial or economic activity take place. In barter systems, goods and services are exchanged
by the people with each other according to their needs and there was no standard of value. When the
concept of money was introduced in terms of gold, silver and precious metals, more standardized
way of settlement of business transactions started happening. This was followed by introduction of
coins and paper currency notes as a medium of store and value. When more and more people started
using the currency it leads to more buying and selling of commercial transactions.
Banking habits also started evolving as the customer’s need safety and security of their
money as well as want to transfer the money to other customers. Under negotiable instrument act,
1881, cheque system was introduced for making payments instead of using cash. Bearer cheques
were used for cash payment to the drawer as Self and order cheques were used for payment to
the beneficiary whose name appeared on the cheque as Payee. Order cheques were issued for
making payment to Payee to a specified person or through his order. Concept of setting up of
clearing houses came into picture when the cheques deposited by the customer at different bank’s
branches need to be settled. This was the beginning of Stage 1 of Manual Clearing Payment and
Settlement System in Indian banking System.
[Link]. Stage 1 – Manual Clearing Payment System
Clearing house can be defined as a place where settlements of cheques deposited by the customers and
drawn on another bank are settled and credit is afforded to their respective accounts. Clearing houses
are voluntary organization and form of association approved by the management of the banks where
all banks settlement current accounts are maintained. Since the volumes of cheque were less so these
cheques used to be exchanged manually by the representatives of the different bank at clearing house.
Clearing houses were managed by RBI wherever its office of the banking department is there. In the
absence of RBI offices, the State Bank of India and any one Scheduled Public Sector banks managed
clearing House. Manual sorting of cheques was done by clearing branch of the bank called Service
branch and manual listings of details of cheque number, drawee bank and amount is prepared. These
cheques and listings were exchanged in clearing houses by the representatives of different banks and
the Clearing House Managing Bank keeps noting the details of cheques drawn in favor or against
the banks. The netted figures are debited and credited respectively to bank’s current account for he
cheques which were honored by the banks and for dishonored cheques, the cheque return clearing
house were conducted in the evening. In 1998, 14 clearing houses were managed by SBI, 840 by SBI
and remaining 6 by public sector banks.
[Link]. Stage 2 – MICR Clearing Settlement
With increasing volumes of cheques, opening more new retail banking branches and number
of accounts; it became difficult to handle the settlement of cheques through manual clearing
settlement. Customers were also complaining of more time being taken for example 4-5 days in
the final credit of the cheques deposited by them. Computerization of clearing operations was
the next big evolution and was the major step taken for use of technology in banking operations.
In early eighties, microprocessor-based computer systems were set up as claim based settlement
in Delhi, Kolkata and Mumbai. In 1986, the magnetic ink-based character (MICR) solution of
faster processing of cheques settlement system was introduced. These cheques were processed on
readers sorters so new cheque formats were redesigned with MICR code line High speed sorters
have the capacity of reading 2400 cheques in a minute for local clearing instruments. MICR
Clearing was introduced in Chennai and New Delhi in 1987 and in Kolkata in 1989. MICR Code
line contains 6-digit cheque number, 9 digit city bank branch code, two digit account type like
10 for Savings or 11 for current account and two digit type of payment instrument like cheque,
pay order or demand draft.

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[Link]. Stage 3 – Cheque Truncation System

In 2008, an image-based cheque clearing settlement system was introduced in New Delhi in which
the physical movements of the cheques from the bank branches to clearing houses were stopped.
CTS was introduced after 20 years of MICR clearing as the cheque volumes increased and clearing
differences reconciliation problems started arising. Benefit of CTS was a faster clearing settlement
cycle, cost reduction, restricted loss of instruments in transit and no reconciliation problem. In CTS
electronic image of the cheque is captured and data is saved, and the credit is given to the customer
within 24 hours i.e. T + 1 Basis. CTS was introduced in Chennai in 2011 and in Mumbai in 2013.
Cheque truncation system was different as compared to manual clearing, microprocessors and
MICR Settlement because here the movement of the cheques were stopped. The images of cheques
are digitally secured and ensure safety of funds in the CTS Process and transfer from branches to
clearing house electronically.
[Link]. Stage 4-Digital Banking / Payment System
With the growth of usage of cheque payments system and development in banking, role of technology
changed from the support function to enabler function. New types of payment instruments were
developed all over the globe and customer start using the same for faster and accurate settlement
of commercial and economic activity. Indian Story of strong payment systems also evolved after
1990’s with introduction of various electronic payment systems by the Reserve Bank of India. RBI
formulated payment system vision to achieve these miles stones since 2008 and latest one is Vision
2015-2018 to create awareness among the customer and modernization of payment system with
advanced technology. Rangarajan Committee on computerization in early 1980’s suggested a phased
plan for mechanization and computerization. This was followed by various initiatives taken by RBI
through Saraf Committee, Patil Committee, Burwan Working Group.
At present Indian Banking System is having two different payment systems – paper-based and
paperless as reflected in Figure 3 to meet the funds transfer and remittance requirements of customers
based on their requirements depending upon the cost and time. Paper-based payment systems includes
cheques, draft, pay order and dividend warrants in the paper forms. Paperless payment systems includes
electronic, card based and large value payment systems as discussed below:

• National Electronic Funds Transfer (NEFT): In 2005 Reserve bank of India started a funds
transfer facility one to one basis without any paper instruments like cheques. Every retail branch
needs to be NEFT enabled and individuals, companies and firms can transfer funds. There is
no maximum or minimum limit on the finds transfer through NEFT. NEFT is settled in twelve

Figure 3. Payment systems in India (Source: Banking on technology, perspectives on the Indian banking industry)

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batches stating from 8 am to 7 pm from Monday to Friday whereas on Saturdays, there are only
6 settlements from 8 am to 1 pm;
• Real Time Gross Settlement (RTGS): In March 2004, the Reserve Bank of India introduced
a new system of online order by order basis funds transfer system on real time basis. These
payment transactions are final and irrevocable and done individually. RTGS is an individual
transactions settlement payment system where as NEFT is deferred net settlement system in
batches with particular time. RTGS system is for high value transactions for 2 lacs and above
with no maximum amount. RTGS is available for customers between 9.00 hours to 16 30 from
Monday to Friday and from 9.00 hour to 14.00 hours on Saturdays. The customer needs to obtain
IFSC Code from their bank branch where the account is maintained and there are more than 1,
00,000 RTGS enabled bank branches in India;
• Immediate Payment Service (IMPS): Is an interbank instant real time funds transfer system
electronically and it offers services through mobile phones. This payment system facility is
available24 by 7 including bank holidays throughout the year. IMPS is designed on the framework
of the National Financial Switch Network and controlled and supervised by the National Payments
Corporation. Customer has to save the IFSC Code of Beneficiary and his account number. There
is a daily cap limit of 2 lacs in IMPS and SMS based mobile banking can be used for transactions
up to Rs.5000/;
• Aadhaar Enabled Payment System (AEPS): Is an initiative by Ministry of Electronics and
information to ensure cashless, paperless and faceless payment system. This is bank led model
where customer Aadhar number is linked with bank account and allows online interoperable
commercial transaction at merchant place / point of sales. Bank Mitra and Business Correspondent
plays an important role in AEPS for service activation and operations. Maximum and minimum
funds transfer limits are fixed by the banks to individual customers where RBI does not have
any capped or limit. Various services offered are funds transfer, cash deposit, withdrawal, funds
enquiry and payment transactions. Services are available at morethan118 banks and interoperable;
• Unified Payments Interface: Is any participating single mobile application that powers and
connects multiple bank accounts. UPI has various banking transactions, merchant payments and
fund routing platform. Customer must have smart mobile phone linked with bank account and
having internet facility. Customer need to have A Debit card for generating MP in or resetting
whenever required. Funds transfer limit is Rs. 1 lac and virtual address, IFSC and MMID is
required by the customer for sending and receiving money;
• Electronic Clearing Service (ECS): These electronic funds transfer mode of payment is
used by the customer for periodical in nature and of repetitive nature like monthly salary,
payment of utility bills, rent receipts etc. There are two types of ECS – debit and credit and
includes various transaction processed at NACH – National Automated Clearing House. ECS
is further classified into three categories based on the geographical location – local, regional
and national ECS. Institution need to obtain one-time ECS Registration through their bank
and then prepare input file consisting of account number, name, amount, MICR code of bank
and branch. There is no limit on the value of ECS Transactions and amount is credited within
24hours. RBI Bulletin (Aug 2018), payment system indicator reflects NACH Volumes 2503.46
million and value 10736.12 billion;
• Aadhaar Payment Bridge System (APBS): This payment system is a way to transfer funds
without any cheque and debit card. This system is slinked with Aadhar Enabled payment System
and not linked to any bank or branch. This initiative has also been taken by NPCI. The major
benefits of AEPS are that financial and non-financial transactions can be done through banking
correspondent of any branch. It is very secure, fast and safe payment system as every individual
has its own fingerprints and no one copy the same;
• BHIM: Bharat Interface for Money is a unique and recent initiative to promote cashless, fast,
reliable and secure financial funds transfer through mobile. This payment system is interoperable

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with other applications like UPI and bank applications. Bhim is an Indian initiative payment
system by NPCI. It works with simple operations by registering with bank and setting the
password with UPI Pin. Mobile number of the customer act as his virtual payment address and
one can immediate start the funds transfer. BHIM volumes during the year 2017-18 was 87.01
million whereas the value reached 300.18 billion.

3.2. Top Ten Digitalization Disruptions Trends in Indian Banking System

In the year 2017, ever-demanding customers need with technological advancement and new regulations
and compliance have started reshaping the Indian Banking Industry. Banks are now collaborating and
partnering with Fintech Companies instead of looking them as a competitor or disruptor. Following
are the Ten Important Digital and Fintech Trends which is changing the Indian Banking landscape
in the year 2018:

1. Next-Gen Chatbots: In the year 2018, the various banks and organizations are expected to
install more chat bots for their mainstream businesses. Haptik, Surbo, Gupshup, Avaamo and
Senseforth are top 5 chatbot platforms in India. Bajaj Finserv, HDFC Home loans, ICICI, Hero
Motocaps are the early adopter of chatbots for improving quality of interactions’ and accuracy
in decision making;
2. Machine Learning: In 2018, many financial institution and banks will start deploying machine
learning which is an application of artificial intelligence (AI) and new regressions models to
deliver better offerings based on the observations of data. The main objective of machine learning
concept is to predict customer needs automatically without any human intervention. Some of the
important machine learning ethics are supervised machine learning algorithms’, unsupervised
machine learning algorithms, Semi supervised machine kerning algorithms, reinforcement
machine learning algorithms manner;
3. Blockchain: Is seen as the main technological innovation of Bitcoin, since it stands as proof
of all the transactions on the network. It is emerging as a promising disruptive force which can
change the banking industry by enabling various advantages like speed, faster, reasonable or
affordable cost, efficient, secure, safe and transparent system. A block can be defined as ‘current’
part of a blockchain which maintain all the records as well as date pertaining to recent day to day
transactions. Second step is that after completion of transactions it gets recorded in to a permanent
data base. As a result, blocks being created and then it’s a continuous process of creation of
new process once the old block gets completed. Like in a traditional banking day when on one
particular cutoff date, the ledger printouts of all savings and current account are taken for one
quarter and then after next quarter same activity is repeated. Similarly, blocks are linked to each
other (like a chain) in proper straight line and sequential order. Every block also containing a
hash after the previous block. Blocks, meanwhile, are like individual bank statements and block
chain are known as distributed ledger technology;
4. Smart Workflows: Is a prepackaged solution embedded and configured with Artificial
intelligence to provide solutions and identify any errors in the system. This smart workflow
reduces 80% of costs and also supports mobile devices;
5. Automated Personalization: Uses advanced machine learning with the help of FINTECH to
combines offers and messages enabling the user to see on the mobile devices. Both banks and
FINTECH will collaborate their systems to identify the needs of the customers based in their
past history of transaction in their accounts including cards or digital wallets;
6. Open Banking: With NPCI initiatives for launch of Unified Payment Interface and Aadhar
Enabled Payment System will provide users more data with network of financial institutions and
make the banking system more open in 2018. The Open Banking Standard defines the process
of creation of financial data as well as the ways of sharing. distribution and accessed;

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7. Social Media Marketing: Banking and Financial services industry were bit lazy to start the
digital banking products marketing through social media but now they are moving fast on this
front. Social media marketing in banking is done through Facebook, twitter, you tube, integral.
Posting the content on the social media and then analyzing the information can be of great
advantage for utilizing effective social media marketing. The five major advantage of Social
media marketing are Understanding the market, finding out potential customers, identifying
social media influencers, continue eyes on customer’s feedback and amazing the competition;
8. A Digital Wallet: Is another convenient way to do financial transactions by downloading Fintech
company’s applications and by adding money or transferring funds though their bank account,
net banking, credit card or debit card. They can view the pass book for credit balances and use
the wallet for any small or daily use transactions at store. Customer can also store images of their
important KYC documents like a passport, pan card, driving licenses. Mobile wallets volume
603.98 million and value 205.84 billion value transactions in 2015-2016 and In September 2016,
75.30 million volume and 31.92 billion value transactions in Sept 2016 reflects the paradigm
shift in banking customers;
9. Wearable Banking Technology: Ideal for banking and financial service industry “Push” content
such as security notifications or baking alerts for low balances – is poised to usher in the new era
of digital banking. Push’ content including banking alerts, security warnings, low balance notices
and the like can provide a quick report of valuable information with a watch at the wrist. As people
start adopting digital banking products like net banking and mobile banking. the next step would
be sending messages and reminders do various financial transactions. These transactions can be
like routine daily purchasing payments or wealth management activities like on line trading of
shares when it matches the set price of security. Contextual notifications will mean that marketing
and promotional materials can be forwarded to the customer when he requires at correct time.
Customer engagement is an important parameter of customer relationship management to serve
them better and give delightful services to the customers. So, it is a right time to introduce these
new technology solutions to test with right notifications and innovating further. Wearable devices
such as activity trackers are a good example of the Internet of Things, since they are part of the
network of physical objects or “things” embedded with various IT devices sensors, software’s
and connectivity. All such devices help and intermediate in automatic transmission and exchange
of data with all the stake holders like manufacturer, operator and/or other connected devices;
10. Contextual Banking: Traditional banking where customer has to visit brick and mortar
branches to deposit cash, check balances in account, get printed hard copy of statement,
loan application and the banker also use to work on manual ledgers and lots of paper
work. Long Ques at Cash cabin and duplication of work by maintaining various registers.
There has been revolutionary shift in the last four decades from manual banking systems
to e banking system and procedures at the bank has undergone change. All these services
have been now transformed into technology-based banking system and adaptation of these
services by customers has changes the context. The customer experience and the needs
have changed and banks in order to meet the customer needs are bringing more innovative
products. Through Smart phones, customers have advantage of greater mobility, anytime,
anywhere banking experience to satisfy their demands so banking must be contextual. The
banks need to achieve excellence in digital delivery of the financial services and products
and have to ensure the whole series of process with regards to contextual banking.

4. INCREASING TRENDS IN USAGE OF DIGITAL BANKING TECHNOLOGY

Since 2013-14, all segments of electronic payments, particularly retail electronic payments have shown
healthy growth both in terms of volume and value of usage. Comparative Analysis was studied for the
increasing volumes of e-payments adaptation and usage by the customers. For example, RTGS and

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NEFT volumes increased almost one and half time between 2013- 2014 and 2017-2018 reflecting
greater adoption of the digital banking system by all segments of users. RTGS value has increased
from Rs.904968 billion in 2013 -14 to Rs. 14, 67,431.99 billion in 2017-18. Customer-oriented
transactions in RTGS also doubled from 573614 billion in 2013-14 to 1036698 billion in 2017-18
(Table 1 and Figure 4).
NEFT volumes has increased tremendously from Rs. 661.01 million to 1946.36 million whereas
value has doubled from Rs. 43785 billion in 2013 -14 to Rs.172228 billion (Table 2 and Figure 5).
The volume of mobile banking transactions has increased 18-times and the value of transactions
has shown a steep rise. (See Figure 6). Mobile Banking value has increased tremendously from Rs,
224.18 billion in 2013 -2014 to Rs. 14738 billion in 2017 -2018 reflecting tremendous increase of
seventy percent. Table 3 shows the mobile banking volume in millions.
Number of ATMSs has increased 160055 to 212061 whereas point of sales has increase percent
growth of 200% from 1065884 to 3083067 (see Figures 7, 8 and Table 4).
With increase in the number of ATMS and Point of sales and Demonetization has leads to a
significant increase in the credit transactions. Internet and Mobile banking applications downloaded

Table 1. RTGS

RTGS Volume in Millions 2013-14 2017-18

RTGS Total 81.11 124.46
Customer Transactions 76.35 120.71
Interbank Transactions 4.75 3.72
Interbank Clearing 0.011 0.023

Figure 4. RTGS volume in millions (Source: RBI Bulletin)

Table 2. NEFT

NEFT NEFT Volume in Millions

2013-14 661.01
2017-18 1946.36

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Figure 5. NEFT volume in millions (Source: RBI Bulletin)

Figure 6. Mobile banking volume in millions (Source: RBI Bulletin)

Table 3. Mobile banking

Mobile Banking Mobile Banking Volumes in Millions

2013-14 94.71
2017-18 1872.26

by the customers have given the customer easy access to download their statement and make the
payments regularly. Awareness regarding the higher rate of interest in credit cards in case of non-
payment or payment after due date or grace period has shown the shift of the customer for higher
transactions through debit cards. (See Figure 8 and 9 and Tables 5 to 7). Debit cards transactions
have almost double whereas credit card transactions reflect slow increase.
Immediate payment service (IMPS) and unified payment interface (UPI) has emerged as another
preferred choice of digital banking by the customers. This provides multichannel access to the customer
with higher security and faster direct payment systems. IMPS Value touched Rs. 8924.98 billion in
2017-18 (Figure 10 and Table 8).

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Figure 7. Number of ATMS (Source: RBI Bulletin)

Figure 8. Number of point of sales (Source: RBI Bulletin)

Table 4. Number of ATM’s

Year Number of ATM’S

2013-14 160055
2017-18 222247

Cheque payments, on the other hand, are showing a declining trend in terms of volume as
well as value between 2014 and 2017 as MICR clearing has been replaced by cheque truncation
clearing. (See Figure 11 and 12 and Table 9). CTS value as during the period 2017-18 Rs/
79451.24 billion.
All the above increasing trends in Payment Systems reflects the customer’s paradigm
shift from paper-based banking systems to digital banking payment systems. Volumes of
paper-based payment systems like MICR and CTS clearing are declining thus in process
of achieving the vision of RBI and the Government of India to create digital and less-cash
society in India.

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Figure 9. Number of credit cards in millions (Source: RBI Bulletin)

Table 5. Number of point of sales

Year Number of Point of Sales

2013-14 1065984
2017-18 3083067

Table 6. Credit card transaction volume in millions

Year Credit Card Transaction Volume in Million

2013-14 19.18
2017-18 37.48

Table 7. Debit card transaction volume in millions

Year Debit Card Transaction Volume in Million

2013-14 394.42
2017-18 861.08

Figure 10. Number of debit cards in millions (Source: RBI Bulletin)

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Table 8. IMPS volume in millions

Year IMPS Volume in Million

2013-14 15.36
2017-18 1009.8

Figure 11. IMPS volume in millions (Source: RBI Bulletin)

Figure 12. CTS volume in millions (Source: RBI Bulletin)

Table 9. Cheque truncation system volumes in millions

Year Cheque Truncation System Volumes in Million

2013-14 591.38
2017-18 1138.05

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5. CHALLENGES AND OPPORTUNITIES IN

IMPLEMENTATION OF DIGITAL BANKING IN INDIA

Fintech is a new buzzword in the banking and finance world where financial technology companies
play an important role in economic industry. These Fintech companies offer convenient and
efficient modes of services to the customers. Since banking is most regulated industry rules
and governed by various banking regulations acts and rules framed by the central bank of the
country. Therefore, the delivery of banking services to the customers has to be in line with
these regulations irrespective of the mode – manual or technology based. As a banks tie up with
these IT vendors which are new setups or startups thus moving ahead from traditional systems
to digital banking systems.
Financial technology has been defined by different financial institutions as new discovery and
innovation in banking and financial services. This term has started with use of technology applications
to provide the customer different experience while doing banking transactions with comfort and ease
as well as front office staff in banks using computers and internet. New entrants like payment banks
and Fintech companies competing with old existing banks and players in the market who were bit
slow to me the changing demands of the customers
Fintech refers to new processes, application, new market strategy, products or business models
in the banking and financial institutions. These new initiatives taken by Fintech companies can be
classified into five broad categories:

1. First, the banking or financial sector are looked as nurturing more potential customer in various
business and industries. In traditional banking customer has to visit branches but in new model
everything is digitally connected through mobile or net;
2. Second, the banks are now not only serving customer with CASA and fixed deposits products,
but they are advising the customer on wealth management and investment products like mutual
funds, insurance, equity capital markets as well as doing succession planning. Bankers are acting
as financial planner, advisor and cross selling of products as well as support. Very common and
simple example is mobile payment platform;
3. Third, the customer segmentation according to the demographic profile of the customer i.e.
occupation, income level, type of business retail, corporate, private, capital, lending solutions
through technology has made life very easy for the customers;
4. Fourth, the customer engagement and interaction can take different models like Business to
business (B2B), consumer to consumer (C2C) and business to consumer (B2C);
5. Fifth, the Product differentiation according to customer segmentation needs and these products
are in line with the market position. Some, Fintech companies, provide complementary services
such as personal finance management systems, others focus on competitive solutions such as
e.g. peer-to-peer lending.

The digital banking is paving the way to tech savvy economy which is enabling the increase
productivity model and many banking experts and consultants are comparing with the third e- industrial
evolution (Table 10). This is known as e-economy, Internet of Everything (IoE), or internet economy.
Internet has created a new market place and given the new growth opportunity. The new job profiles
are being created with the way the customer experiences have changed. Business Schools are teaching
subjects like digital marketing, IT in banking, e-commerce, digital banking products to the students
and corporate are hiring the young force thus giving the great business opportunity to next generation.
The vision and the aim of digital India to empower every citizen of India digitally as well as every
information available digitally. There are many pillars of opportunities that are going to be built to
escalate public behavior and expectation in digital way. The government of India hopes to achieve
growth on multiple fronts with the digital India programme. Specifically, the government aims to

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Table 10. Digital banking

Sector Business Process Customer Segment Interaction Form Market Position

• Bank • Payments (e.g. • Retail banking • C2C • Bank/ insurer
• Insurer digital wallets • Corporate banking • B2C • Non-bank/insurer
and peer-to-peer • Private banking • B2B – bank/insurer-
payments) • Life insurance cooperation
• Investments (e.g. • Non-life insurance • Non-bank/insurer
equity crowd funding – bank/insurer-
and Peer-to-peer competition
lending)
• Financing (e.g.
crowd funding,
micro-loans and
credit facilities)
• Insurance (e.g. risk
management)
• Advisory
• Cross-process (e.g.
big data analytics and
predictive modeling)
• Infrastructure (e.g.
security)
Source: Financial Technology -Wikipedia

achieve the nine Pillars of the digital India with a vision to connect every Indians through technology
and achieve 100% financial inclusion:

1. Universal access to mobile connectivity;

2. Public internet access programme;
3. Information for all;
4. Digital or IT for jobs;
5. Broadband highways;
6. Early harvest programme;
7. eKranti - electronic delivery of services;
8. Electronics manufacturing;
9. e-Governance – reforming government through technology.

Challenges: The main challenge in implementation in the pillars of the digital India is about its
continuity. It has been observed that such programmes start in good spirits but with the passage
of time it gets slowed down. Therefore, it is important that each and every pillar is linked with
each other and focused and given due importance so the vision is achieved. Other challenges
are improving IT literacy, Data Vulnerability, security and digital frauds. Nidhi (2016) in her
study point out the various challenges in e-banking Implementation are security risk, the trust
factor, customer awareness, privacy risk, competition and challenges in implementation of global
technology. Recent debit card data stolen of 32.14 lakh with 641 customers duped of Rs. 1.3
crore using with five top banks in India has once again open the eyes for more secured digital
banking system. Winning the trust and confidence of bank customer gets negative impact on
adaptation of e banking products.
Opportunity: By digitalizing end to end process and providing customers different options for
payments and settlement of their financial transactions, the dream of cash less and checkless
payment system can come true. The Boston Consulting Group, FICCI and IBA in their report
digital banking – opportunity for extraordinary gains in reach, service and productivity in the

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next five years have said that by eradicating cash from the financial system can enable banks to
achieve 30% percent jump in sales productivity, reduce administrative, staff by about 10-15%
and improve back office staff productivity by 20 percent.
Financial Inclusion: India’s financial inclusion story is not a new term but this has been agenda of
regulator, Government and bankers but technology innovations and interventions have speed up
the process. Every citizen of the country must have one bank account with the objective that all the
savings as well as other banking transactions are routed through these accounts. Simple opening
of account is not only the criteria, but accounts needs to be funds and followed by the regular
transactions. Brick and mortar branch banking businesses are not running into viable projects
as they are not able to recover their infrastructure and administration expenses. Moreover, the
large number and low value of transactions are not in tune with conventional banking systems
so there was an urgent need of technology to link the unconnected people into one. No-frills
accounts with zero balances, fear to use the digital products because of lack of awareness are
the few obstacles in unbanked economies. As a result, there is huge potential of e banking with
more focus on net banking, mobile banking, debit cards usage and ATM transactions. There
are so many examples of countries like Kenya, Bangladesh, and Tanzania who have moved on
from cash rich economy to mobile banking. Financial Inclusion gives an opportunity to tap rural
markets through multiple channels (Table 11).

Following are the major banking reforms in the last five years which has played a game changer
role in pushing digitalization and Fintech:

• PMJDY ‘success: 32.99 Crores Beneficiary, 86480 Crore Deposits and 24.74 Cr Rupay Debit
Cards as on 17th October 2018 and its still increasing day by day is revolutionary achievement;
• Introduction of Payment and Small Bank: An initiative to connect all the customers to the
banking channels who are remotely located as well as habitualise for regular banking services;
• Demonetization leads to Withdrawal of high value notes: Rs. 500/- and Rs. 1000 /- currency
note from circulation in the market 9th November 2016 with four objectives to remove fake
currency, fight terrorism, curb illegal money and more importantly to push up digital banking
and e-wallet-based transaction in the financial system;
• RBI set up a regulatory working group to study regulatory issues to Fin Tech and digital
banking: To study in details the regulatory overviews for various issues and challenges
relating to Digital Banking in India, RBI has set up working group in view of the customer
increasing demand and dependence on cash-less banking products. The main objective of
this group was assessing risks and implication challenges being faced. It will also review
the new technology platforms as well as various parameters’ customer behavior for adopting
these new innovative products.

6. CONCLUSION

Pricing, speed, and convenience are three important parameters will create a better customer experience
through innovation. Digital banking is a future and solution to achieve the payment system of vision of
cash less and check less financial system in India. With convenient, secure, efficient and connecting
people from remote areas awaiting banking channels. Increasing trends and paradigm shift of the
customer’s from traditional banking system to digital banking systems are the positive signals of the
change. RBI and government initiatives to promote the digital banking as well as focus on regulatory
compliance and security are clearly visible and appreciable.
To conclude, digital banking is an important way to achieve the vision of cash-less Indian economy
and is a holistic approach to connect all the retail as well as business segments. All the players in
the market like banks, customers, Fintech companies have to work in a very closely netted group to

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Table 11. Countries that use mobile banking

Country Active Customers Mobile Payments/ Systems

Kenya Two Third Adult Active Customers Mobile Payments & Transfer
Bangladesh Over 20% of population Mobile Financial Services
Tanzania 50% of Mobile Phones Owners Mobile Money Systems
India Unbanked Population -47%
900 million Phone Subscribers
only 1 to 1.5% of mobile subscribers Mobile Money

overcome the constraints like more dependence on cash as a habitual issue which will not change
overnight. Other challenges and hurdles are awareness, internet infrastructure; connectivity plus
urban center have high internet speed where as in rural India still many people fear to go to ATMs
for cash withdrawal. These various initiatives of financial inclusion through digital India, Fintech
companies demonetization of Old High value denominations of currency notes are the revolutionary
moves and shown the unique way where Indian citizens are moving to cash less economy through use
of digital banking products like debit cards, net banking, use of ATMs, mobile wallets and mobile
banking. India is getting ready for cashless economy as well as awareness in increasing and fear of
risk is decreasing. This mission will be achieved with customer awareness, financial literacy and
connected people through digital technology for inclusive growth of the Indian economy and all the
stakeholders in the financial system like customer, bankers, Fintech companies, regulators and the
government have to work and move together to turn this new paradigm shift of digital banking into
reality and Inclusive for all.
Digital Banking, Business Analytics, Fintech Companies with Artificial Intelligence (AI) will
become the major game changes in the year 2018 -19. Banks+ FINTECH will bring the major benefits
like improved customer experiences, risk free, convenient, cost effective services thus making digital
banking the most preferred banking of the future.

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Poddar, B., Erande, Y., Chitkara, N., Bansal, A. & Kejriwal, V. (2016). Digital Beyond New Horizons in Indian
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RBI Bulletin. (2018, August). Payment and System Indicators.
RBI Bulletin. (2014, July), Payment and System Indicators.
CII - Deloitte Report. (2016), Banking on the future, Vision 2020.
Report, KPMG. (2017). Banking on the Future (3rd ed.). Retrieved from [Link]
Reserve Bank of India Report. (2017). Report of the Working Group on Fintech and Digital Banking. RBI Mumbai.
Prof Bhattacharya, B., & Pradhan, S. (2017). We School, Digital Revolution in the Indian Banking Sector.
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Capgemini Report. (2016). Top 10 Trends in Banking in 2016 –What you need to know.
Niti Aayog Digital Payment Booklet. (2018). Trends. Issues and Opportunities.
PWC- ASSOCHAM Report. (2015). Logging into Digital Banking – Creating Access Transforming Lives.

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