International Journal of Research in Finance and Management 2018; 1(2): 28-32

P
P-ISSN: 2617-5754
E-ISSN: 2617-5762
IJRFM 2018; 1(2): 28-32 Digital technology in the realm of banking: A review
Received: 19-05-2018
Accepted: 20-06-2018 of literature
Varda Sardana
Assistant Professor, Varda Sardana and Shubham Singhania
Department of Commerce,
Shri Ram College of Commerce
University of Delhi, Delhi, Abstract
India This paper reviews the theoretical literature on the growth of digital and information technology in the
Indian banking industry. The stupendous advancements in digital technology have transformed the way
Shubham Singhania banks operate. The commencement of the age of digital business has been disrupting the business
Assistant Professor, Guest environment and breaking out innovative and singular ways of doing business. One of the latest
Department of Commerce, outcomes of this is digital banking. Digital banking technologies have escalated over the years, with the
Hindu College, University of availability of a large portfolio of products such as deposits, ATMs, debit cards, mobile payments, and
Delhi, Delhi, India the like. There is an immense possibility of using the infrastructure of the digital age to create
opportunities - both local and global. The increase in competition and various other challenges in the
banking sector are pushing the banks to adopt new digital models that present unique sources of value
to them. This paper examines the extent and the direction of the effect of digital technology in the
domain of Indian banking.

Keywords: Digital, technology, banking, digitalization, India

1. Introduction
The world has been stunned by the rapid advances in technology over the past several
decades. It has touched and has left an indelible mark on everything and anything that human
beings can fathom. There are innumerable instances of technology creating and breaking
lives and businesses – one of these being the business of banking. The intrusion of digital
technology into the sphere of banking has brought about a paradigm shift in banking –
creating what is now referred to as Digital Banking.
In a broad sense, digital banking refers to the employment of technology to conduct banking
transactions in a smooth manner. It, therefore, includes online banking, electronic banking
and mobile banking- the terms that are of common usage. Contrary to traditional banking,
digital banks aim at developing adaptable digital products and services to meet the needs of
their digital customers. While traditional online banks use pre-designed software to increase
their reach, presence and respond to customer needs, digital banks use IT experts to
understand and comprehend their customers, and design their products accordingly.
Needless to say, the infusion of technology has now become indispensable for any industry,
and lagging behind can have severe repercussions. Embracing the challenge is what an
industry should aim for, especially when that industry is highly dependent upon its clientele.
The aim of this paper is to examine the extent and the direction of the effect of digital
technology in the domain of Indian banking. An extensive review of relevant literature
available in journals, papers, and research articles has been undertaken, along with data and
information from secondary sources such blogs and sites.
The layout of the paper is as follows: Section II provides insights into the evolution of
technology in the banking sector in India, and the digital transformation that followed.
Section III throws light on the scope of digital banking and the ground that it covers. Section
IV and V examine the perspective of banks and customers, respectively, in this area. The
Correspondence challenges faced by India in adapting its banking sector to the peculiarities of technology
Varda Sardana have been highlighted in section VI. Finally, section VII gives the concluding remarks.
Assistant Professor,
Department of Commerce,
Shri Ram College of Commerce 2. Evolution & digital transformation of the banking sector
University of Delhi, Delhi, The period of 1990s, in India, was marred by various financial reforms. These along with
India globalisation and liberalisation brought about monumental changes in India’s business

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environment, which included banking. For a modest start, bills, transfer of funds and the like, using the internet.
Reserve Bank of India set up a committee chaired by the 2. Mobile/Phone banking: Phone banking allows a
then RBI Governer, Dr. C. Rangaranjan. With a focus on customer to communicate and give simple instructions
customer service, the committee drew up a plan for to the bank through the use of their mobile keypads, on
computerization and mechanization in the banking industry a cellular device. It allows them to deposit a cheque,
for the period of 1985-89. Once the requisite experience in transfer funds, pay bills, know the account balance,
computerization was gained, a second Rangaranjan locate an ATM or receive information about their
committee was formed in 1988 in order to plan for the account’s activity.
extension of automation to other areas like funds transfer, e- 3. Automated Teller Machines (ATMs): ATMs were the
mail, BANKNET, SWIFT, ATMs, Internet banking etc. first well-known machines to provide electronic access
Subsequently, in the year 2000, the Government of India to customers. These machines enable a customer to
enacted the Information Technology Act, 2000 in order to perform tasks such as cash withdrawal, and enquire
provide legal recognition to electronic transactions and other about account balance, without the help of a bank
means of electronic commerce. representative. The more complex machines also allow
1996- 98 was the period of Internet banking adoption. After customers to print their passbook, deposit cash and
ICICI, Citibank, Indus Ind Bank and HDFC Bank were the access a line of credit.
early ones to adopt the technology in 1999. Reserve bank of 4. Plastic Cards: A plastic card issued by a bank to its
India set up a ‘Working Group on Internet Banking’ to customer can be in the form of a Credit card, Debit card
examine different aspects of internet banking. Starting or Smart card. These cards simplify the process of
internet banking with elementary functions such as making payments at point of sale, provide easy access
providing information about interest rates, checking account to credit for a certain period of time or can perform
balances and computing loan eligibility, the banks various types of pre-defined financial transactions,
eventually extended their services to online bill payment, respectively.
transfer of funds between accounts and cash management 5. Electronic Clearing Service (ECS): Repetitive and
services for corporates. This was followed by facilitation of periodic payments are essentially undertaken
payment for e-commerce transactions, by directly debiting electronically through ECS. It is used by institutions for
bank accounts or through credit cards. making bulk payment of amounts towards distribution
A high penetration of smartphones and internet of dividend, interest, salary, pension, etc., or for bulk
connections, coupled with a preference for non-branch collection of amounts towards telephone / electricity /
banking channels, as well as advent of regulations in this water dues, cess, etc.
sector has brought about a favourable shift in the consumer 6. Electronic fund transfer: Electronic fund transfer
behaviour, indicating that a period of premier digital systems are dedicated towards transfer of funds within a
banking is approaching. financial institution or among many institutions,
Traditional banks in India have been seen to follow certain without the involvement of the bank staff. Such a
stages to bring about the digital transformation. They started transaction takes place over a computerised network.
with building new financial products as well as channels, 7. PC/ House banking: PCs equips users to interact with
such as mobile phones, in order to respond to new their bank by means of a computer with a dial-up
competition. This has been followed by an effort to modem connection to the phone network. However, it
reengineer the technological infrastructure such as the involves complex installation procedures and
payment platforms, to make them more flexible and user- maintenance costs.
friendly. Lastly, in order to position themselves in the digital
environment, they have adopted sustainable strategies 4. From the perspective of banks
including changes and investment in their organisations. Technology provides an opportunity to banks to build new
India is now seeing a rise in the number of digital savvy models and platforms that have the ability to adapt to the
youth, who are already at ease with handling their money, need of the customers. Banks understand that it’s not just
finances and banking transactions in a virtual manner. As about the complexity and multiplicity of customer needs,
this generation matures, digital banking is sure to witness a but customers are now demanding services that are
boost. customized to their needs. What’s more, they don’t shy
away from changing their banks, if these needs are left
3. Scope of digital banking unfulfilled. This calls for banks to become more sensitive,
Digital banking is not only restricted to using internet to aware and relevant to customers, not only by increasing
access banking services, as is usually perceived, but it their communications, but by providing the right service at
comprises of a whole array of banking services delivered or the right time and place.
consumed using technology. Hence, with a wide scope, According to Chen, HV and Lam (2014), banks in India and
digital banking encompasses the following: in major parts of Asia use three strategies to position
1. Internet Banking: The internet is a powerful medium themselves in the digital environment. These are (i) Branch
and is used by banks to provide services at different centric, product-focused model, which focus on their
levels. This includes providing basic information about traditional model, and supplements it with direct channels to
the various products and services of the banks, provide low-key services to customers, (ii) Multichannel
communicating with the customers regarding their client-centric model, which uses both, physical branch
account balances or loan applications and allowing the channel as well as direct channel- which is the most famous
customers to undertake transactions such as payment of among banks, and (iii) Self-directed digital-centric model,

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that relies on innovative direct channels for sales and uses a As is clear, there are different strategies and models that can
complementary light physical presence for customer be adopted by banks. However, in the context of India,
acquisition- the model which is adopted by leading digital ‘Internet only’ models have failed. The present trend is
banks. It is for the banks to decide which technological ‘Brick and Click’ or ‘Click and Mortar’, wherein banks
model to adopt to satisfy their customers. combine physical presence with internet and electronic
channels.
4.1 Benefits to the bank
Using digital means to provide services is in the interest of 5. From the perspective of the customers
banks. It reduces the operating costs by cutting down back Bank customers are no longer ill-informed, but they know
office operations, minimizes errors, and brings down the how to protect their interests. They easily switch between
number of hands needed for operations. It enables a bank to banks in case of any dissatisfaction with the services. As per
downsize it branch networks, and offer services in an a study conducted by Rao and Budde (2015), 67% of Indian
innovative and attractive manner. This gives a boost to the customers prefer to interact with their bank through multiple
service quality, delivery and efficiency, which may act as a channels. However, these channels do not replace one
source of competitive advantage to banks employing digital another but rather extend the ways in which a bank can
technologies. By removing geographical limitations, it interact with its customers. Another study by Srivastava
paves the way for extension of operations of small banks. (2007) revealed that demographic factors such as income,
No only this, but digital technology has aided banks in gender, education levels have an important influence on the
increasing the pace of data collection, management, and willingness of customers to go for digital banking. It was
financial engineering, thereby improving the ability of also suggested that enhancing the awareness, technological
creditors to assess the creditworthiness of potential literacy and skills of customers would restrict the ability of
borrowers. Various studies have shown that due to increase these factors to impede the use of online and electronic
in technology usage, the banking sector’s performance banking services.
increases day by day. Moreover, just having an online existence is not what the
customers of digital-banking are looking for. What they
4.2 Deterrents to going digital want consists of (i) superior value and good quality basic
Continuous alterations in the external environment of the services, (ii) a strong brand reputation, (iii) the range,
bank- through globalisation, liberalisation and deregulation- variety, competitiveness of financial products offered, and
have led to multiplication of rivalry in the sector. Just (iv) a high commitment to customer services, need,
focussing on their costs is no more the trick, but engaging grievances and positive experience.
and retaining the customers is. Mia, Rahman and Uddin
(2007) applied the Porter’s Five Forces Model of 5.1 Benefits to Customers
Competition, in order to gauge how remunerative the digital The major turn-on of technology based banking derives
sector is for the banks. This model is applicable for the from the ‘anytime, anywhere availability’ of banking
Indian banking sector as well. First, taking up the extent of services. These results in not only convenience to customers
rivalry among the existing players, there is no single ‘pure’ but significant reduction in time and effort involved. What
digital bank in India. However, banks are highly follows is a decline in cost of availing services, as well as
competitive in the sense that they are rapidly exploiting continuous access to information. Automation of banking
technology to provide various services online and services also facilitates record-keeping of one’s transactions,
electronically, without compromising on the quality. As far leaving behind a financial trail that can be easily tracked.
as barriers to entry are concerned, they are high because of For corporations and firms, it supports better fund
the fact that certain banks in India that have a huge customer management, and provides access to various services on the
base and loyalty, and hence have competitive advantage go, thereby increasing efficiency. A number of new services
over new entrants. Coming on to suppliers, which consist of such as warnings, notifications, budgeting are also a by-
the software providers in case of a banking industry, product of digital. Due to removal of time limitation,
presence of a few large players increases their bargaining geographical limitation and cost limitations, digital banks
power. At the same time, the bargaining power of buyers, generally have an upper hand over branch-based banks.
that is the customers, is increasing due to frequent changes
in customer attitudes, lowering of switching costs and 5.2 Customer Concerns
competition from non-banking companies. Lastly, the threat A shift towards digital banking does not indicate a downfall
of substitutes to banking in terms of competition from the of the branch-based banking. Branch networks would
non-banking, financial, and micro credit sector is rising. The continue to be pertinent, unless the various concerns that
boundaries that used to exist between banking and non- haunt customers are done away with. The major issue is
banking in terms of services are now thinning. This is security and safety of transacting using the internet.
evident in the ways telecom companies such as Reliance Jio, Instances of identity theft, loss of private information and
as well as Fintech start-ups such as Paytm is offering digital misuse of sensitive data are not meagre- acting as a damper
financial services to their customers. to use of technology- especially among risk-fearing
Although the above analysis shows how tough it is for any customers. Use of electronic means to conduct transactions
new bank or financial service provider to adopt digital takes away the ability of customers to have a personal
technology in the light of competition, but with the right connect with bankers and seek advice on complicated
combination of ideas and long-term strategy, one can surely products and services. At the same time, some believe that
position itself in this sector. the online products in themselves are so complex that they

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need someone to explain the usage to them- making manual ‘pure’ digital bank is bleak in India. Not because of the lack
banking seem more convenient and flexible. Many a times, of market, but because ‘brick and mortar’ branches provide
these services may be difficult to access, for example, due to the Indian customers, especially the aged generation, a sense
non-availability of ATMs in a certain area, or no internet of security and confidence. Hence, despite the appeal of
connectivity, and the fees charges for the transactions are digital offers, banks need to balance their traditional
perceived by some customers as being unreasonable. physical presence with digital presence. The role of the
Indian government in providing a conducive environment to
6. Challenges in implementation foster positive attitude among customers, is also
India faces certain peculiar hurdles which inhibit the growth indispensable. At the same time, traditional banks should
of digital banking in the country. The major ones are: wake up and realise that they are no longer the sole players
 A country requires an adequate level of infrastructure in in the industry, and that the new entrants, in the form of
order to adopt the technology and provide the necessary fintech start-ups, have a lot to offer to a digitalized clientele,
support for its growth and usage. However, the and that both of them can achieve a win-win situation by
infrastructure in India is still as a nascent stage. Internet collaborating, rather than competing, with one another.
connectivity is yet to reach many. Lastly, Indian banks need to deal with the possible negative
 Since the internet is an open source of communication, outcomes of digital disruption on their value by stimulating
privacy and security of data transferred over the digital awareness and achieving critical mass- which would
network is susceptible to theft, unauthorized access and ultimately lead to word of mouth promotion.
exploitation. Cybercrimes and hacking is a big reality in
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