How can Digital Banking in India be made more accessible?

AEPS Software Provider
Despite the considerable growth in mobile and internet users in India, the uptake of Digital Banking has been relatively slow. So, what’s holding Digital Banking in India back?
The future of Digital Banking in India is looking very bright. With the ever-growing population and the rise of digital natives, more and more people are using Digital Banking platforms to manage their finances. This trend is only going to continue, and we are very excited to see what the future holds for Digital Banking in India.
In the last few years, the FinTech industry has seen the most notable changes, particularly in the Digital Banking space. Studies show that the Indian Digital Banking platform market was worth $776.7 MN in 2021 and is expected to grow at a CAGR of 9.8%, earning expected revenue of $1485.5 MN by 2028.
This rapid growth is due to a number of factors, such as the increasing penetration of mobile devices and internet usage, the central government’s push for a cashless economy, and the growing awareness of Digital Banking services among consumers. With all of these positive indicators, it’s clear that Digital Banking is here to stay and will continue to grow in popularity in the years to come.
There are a few key drivers that have led to the increased digitization of society. The first and most obvious one is the pandemic. The pandemic forced everyone to use more digital platforms and services, which then led to more customers using these platforms and services. This in turn led to things like easier payments, personalized assistance, and shorter turnaround times – all of which enticed customers to use them even more.
Another driver of digitization is the increasing availability of high-speed internet. This has made it possible for more people to access digital services and has made it easier for businesses to offer these services to their customers.
Finally, there is a growing awareness of the benefits of digitization. Customers are becoming more aware of the advantages that digital platforms and services can offer them, and this is leading to more businesses investing in digitization in order to remain competitive.
The smart phone market in India is booming and with the availability of low internet charges, more and more people are using digital platforms and mobile apps to get the job done. India’s growing demand for smart phones and an increasing number of internet users are expected to drive the demand for all-in-one banking platforms, propelling the market forward. At present, there are significant differences between traditional banking and digital banking and with the options available to consumers, the decision of which to use is completely in their hands.

What are the challenges Digital Banking in India is facing?

In order to understand the future of Digital Banking in India, we need to look at the challenges it is currently facing. The majority of banks in the country have a digital presence, but they face a number of challenges.

1. RBI branch regulations

According to RBI regulations, traditional banks are required to have a minimum number of branches, which means they need to set up bank branches at various physical locations. By doing this, they incur high costs to maintain these locations and pay salaries to their employees. As a result, it is much harder for these banks to maintain and operate online.

2. Maintaining physical branches is costly

Not only do traditional banks have to pay to maintain their offline branches, but a substantial amount of money has to be allocated towards upkeep and utilities. As a result, this takes away from one of the more prominent benefits of digital banking- higher interest rates and reduced fees.

3. RBI neobanks regulations

Although neobanks can offer services such as higher interest rates and lower fees due to their online presence, they still face some obstacles. The most significant issue neobanks face is that they are not banks. Neobanks are actually financial institutions that do not have a banking license and are not directly regulated by the RBI. This means they cannot provide certain banking services like loans or credit cards.

4. Harder to trust

One of the issues Digital Banking will have to face in the future is how to address customers’ grievances. Some customers find it hard to trust mobile banking applications. In the case of a discrepancy, if they are not able to reach out to a support executive, unlike a traditional bank, they cannot go to a physical location to address their concerns.

The way forward

In spite of the barriers to growth in Indian digital banking, there is still light at the end of the tunnel.

1. Partner banks

Despite the barriers to growth that Digital Banking faces in India, there is still hope for the industry. One way forward is for Neobanks to partner with banks that are regulated by the RBI. This will allow them to offer better banking solutions and gain the trust of the average individual.

2. Revised RBI regulations

The RBI has hinted that it may bring neobanks under its purview. This would mean that neobanks would have to adhere to the same regulations as traditional banks, which could make it difficult for them to compete. This would mean that these banks would come under the direct supervision of the RBI and also be given Digital Banking licenses. The RBI has put out guidelines for digital lending, as well as bank-FinTech partnerships. This move would help to regulate the neo banking industry and protect consumers.

3. Consumer demand

India’s digital revolution is gaining momentum. With the advent of new technologies, Indian customers are constantly demanding better banking services that can be accessed at any time and from anywhere. The digital space has created several opportunities for banks to reach out to their customers in a more efficient and convenient manner.

4. Going cash-free

The Covid-19 pandemic has accelerated the need for digitalization in most services, banking included. Neobanks and Digital Banking platforms have increased rapidly in the last two years as a result. Due to the large number of new neobanks, the Digital Banking industry has experienced increased competition, which has resulted in massive growth. With the advent of the virus, UPIs and other cashless methods of transactions have also been greatly emphasized.
In a nutshell, it’s hard to say if traditional banks will eventually become obsolete. The older generation is quite accustomed to using traditional banking services and may find it harder to make the switch to digital banking. However, as time goes on, it seems inevitable that more and more people will make the shift to a more digitized banking system. After all, digital banks are easier to open and work with on a day-to-day basis.
Adopting technology is one of the crucial ways to grow the digital ecosystem. While compared to certain countries, India still has a long way to go when it comes to Digital Banking presence. However, the recent RBI regulation changes point to a bright future. Collaborating with digital-first financial service providers is one way that will help adopt the technological challenges and grow the digital ecosystem.

What will the future of Digital Banking look like in India?

RBI regulations on neo banks and FinTech companies in India are set to change in the near future, though it’s not yet clear if these financial institutions will be treated like banks. If they are, though, RBI regulations and a banking license will allow them to offer a range of services like overdrafts, loans, credit cards, and more.
This could be a big game changer for Digital Banking in India. So if you’re interested in knowing more about how these changes could affect the future of Digital banking in India, be sure to check out this article.

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