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Legal Article by - SHRADHA JAIN (This Article was written by her during her Internship)
Abstract
All around the world, after the introduction of Digital banking has created a revolution with technology in the sector of Traditional Financial Institutions. A dynamic and flexible technological system has reach worldwide reach and banking activities become simple and convenient for both banks and their customer. A strong banking infrastructure resulted connectivity, stability, data sharing, cybersecurity and standardisation. APIs as progress continues within the RBI regulatory framework of data protection laws as part of the privacy act (PDBP) and open-banking regulations. The present study was aimed to know the impact of Digital Banking on Traditional Financial Institutions.
Introduction
Banking has significant role on economic growth and development of individual, business as well as government. Banking system in India has face technical challenges due to rapid changes in norms and regulation. Traditional banks providing essential services such as deposits, loans, and payment processing but as cornerstone. Traditional Financial Banking serves in a form of more agile, cost-effective, and customer-centric solutions. Automation in banking sector represent as a Revolutionary Digital Era. Digital banking offers services savings accounts, current account, bill payments, fund transfers, loans, and investments, all available through digital platforms. The impact of Digital Banking on traditional banking models is a full modern struggles and opportunities. Research describes recent important changes in a traditional bank and their impact.
Analysing Recent changes in Digital Banking Regulations
Its Strategic implementation process of Digital Banking for resolving complex structure of traditional banking system through Information Technology. There are few important recent changes in Digital Banking Regulations:
Electronic know your customer (e-KYC): - e-KYC process enables customers standout digital platforms with verification of identities and conducting anti - money laundering checks. 811 has an incremental on-boarding process that begins when a customer signs up for an account through KMB’s mobile banking app or website. Kotak 811’s use of a video-based KYC process that leverages the national ID system in remote area.
Cyber security control: - RBI Governor Shaktikanta Das emphasis the need of strong cyber security controls and measures for curb digital frauds. Government introduces The Personal Data Protection Bill (PDPB) to ensure privacy.
Digital infrastructure: - Unified Payment Interface (UPI) seamless process for making payment on fingertips, 24/7 instant money transfers possible through mobile. Digital platform like Phone Pay, Bharat Pay or Google Pay facility smoothening monetary transaction. Kotak 811 records more than 5 billon monthly UPI transaction.
APIs Integration: - Application Programming Interfaces provide seamless peer to peer transfers, reliable and real-time experience in bank account opening involvement with third party services. APIs to fulfill its objective of “presence-less, paperless, and cashless service”
Sandbox framework: - As per RBI’s regulatory sandbox framework KBM provide facility to developer sandbox for examine their digital banking platforms. They can create an account and obtain login id credentials for testing their digital on-boarding system
The Impact of Digital Banking on Traditional Financial Institutions
Adaptation of digital banking to enhance organizational performance, increase customer expectation, complying routine tasks and maintaining cyber security. The rise of digital banking/ Neo Banking has significantly impacted the traditional banking Institutions. Let’s delve into impact of digital banking:
Automation of traditional banking units: - Digital banking open a door for new market with the ideology, Traditional banking institutions realizing that digital transformation wasn’t a boon – it was battle of survival. Kotak 811 is first Step toward automation with digital at its core.
High customer expectations: - After a transformation in finance sector customer expectation on peak due to available of banking services 24/7, customers can access their accounts at any time of the day, with the outdated IT infrastructure enable to fulfil expectation.
Competitions and high cost involve: - Due to physical banking units and staff it leads to high cost which emerge solution in the form of Smartphone revolution. By automating routine tasks and implementing cloud-based solutions, banks can significantly cut operational costs.
Regulatory framework: - NITI Aayog report titled `Digital banks: A proposal for Licensing & Regulatory Regime for India. KBM full – stuck digital banks under Banking Regulation Act. 811 has an incremental on-boarding process that begins when a customer signs up for an account through KMB’s mobile banking app or website.
Personalization: - Personalization is another important factor in digital banking that enable to impacts financial leverage in the form of individual profile, CMA Data /project reports and specially focusing on customer preferences and behaviour. This personalized approach work as a bridge to enhanced customer engagement on-boarding and satisfaction, fostering long term loyalty towards banks.
Case Study:
Kotak 811: Transforming an Incumbent Bank into a Digital Powerhouse
Kotak Mahindra Bank has undergone revolutionary upgrade its infrastructure into full digital retail bank. Kotak 811 (KMB) have emerged with tech expectations for new era customers. Real time experience of instant payment, 24/7 customer support and accessibility mobile banking services through application. Its reforms itself in a Kotak: A Digital odyssey. In demonetization period attribute to powerful growth with the achievement of real time user experience, on-boarding customer process completed and zero fees for any digital event and transaction.
Conclusion
Traditional banking take initiative towards technologies and enhance their digital capabilities as a result boost in banking system to retain in world. By embracing digital tech innovation and focusing on customer-oriented services all around the world, the bank has successfully navigated the tasks and project of the digital era. By leveraging digital technologies to offer a seamless, convenient, and banking on boarding experience, the bank has successfully expanded its customer base, enhanced operational efficiency, and gained a competitive edge. Digital banking has enhancing customer experiences, risk management cycle, fraud prevention, and decision-making processes easier within both Digital banking platforms and traditional banking sectors. Digital banking empowers banks to tailor services, enhance customer experiences, and penetrate new markets. Digital banking’s impact on traditional banking services is profound, specialised courses designed for banking’s future.
References
1. NITI Aayog (July report 2022) DIGITAL BANKS A proposal for Licensing & Regulatory Regime for India. DigitalBanking07202022_compressed.pdf (niƟ.gov.in)
2. IJFANS INTERNATIONAL JOURNAL OF FOOD AND NUTRITIONAL SCIENCES ISSN PRINT 2319 1775 Online 2320 7876, THE INFLUENCE OF DIGITAL BANKING ON TRADITIONAL BANKING SERVICES. 21566f3ĩf8655f3230e55896b049ed7.pdf (ijfans.org)
3. Ivo Jeník, Mark Flaming and Arisha Salman , ConsultaƟve Group to Assist the Poor (October 2022), INCLUSIVE DIGITAL BANKING: EMERGING MARKETS CASE STUDIES
4. Dr. Puja U Kaushik Assistant Professor, Journal of FoundaƟonal Research, ISSN: 2395-5635 Volume XXXII, No.1 (II) : January–June : 2024, THE IMPACT OF FINTECH ON TRADITIONAL BANKING MODELS The-impact-of-fintech-on-tradiƟonal-banking-models.pdf (rgcms.edu.in)
5. International Journal of Emerging Technologies and Innovative Research (DEC 2022 ) THE IMPACT OF DIGITAL BANKING ON TRADITIONAL BANKING SERVICES: http://www.jetir.org/papers/JETIR2212647.pd
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