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Top1. 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 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.
Figure 1. Technology developments in Indian banking sector (Source: ICMAI JAN 2017)