Digital Banking: A reality in India

1. Introduction:

India is a land of opportunities. Right from the ancient ages to the modern age, Indians have always strived hard to innovate new things and technology. We have taken great leaps in technology including space technology and information technology.

On February 15, 2017, ISRO launched 104 Satellites in a single flight. This is in addition to the fact that Aryabhat was probably the first astronaut of the world.

First Information Technology Company of India i.e. Tata Consultancy Services (TCS) was founded way back in 1968. Infosys was founded in the year of 1981. Bangalore is known as the Silicon Valley of India and also the IT Capital of India. Hyderabad, Chennai, Gurgaon are other cities where multinational companies are lined up to open their office.

Similarly today every company wants to use the advancement in the area of information technology. They want to use these technology to provide quicker and more effective services. Banks are also one of those industry which is relying heavily on new technology. We have moved from the era of “standing in queue for hours to transfer money” to “transfer of funds with few clicks on our mobile or laptop”.

2. Online Products

Banks were the early adapters of technology and now they are bearing fruits of the same. Now you can open bank accounts online with few clicks. You don’t even need to visit branches and fill up lengthy documents.
Further, online shopping on Amazon or Flipkart etc. have become possible because of online banking. You can sit at home, browse hundreds of products, select them and pay online for selected products.
Below is some of the online accounts being offered by various banks in India:

1. digiSavings (DBS India)
2. Abacus Digital Saving Account (RBL Bank)
3. Kotak 811 (Kotak Mahindra Bank)

In addition to the above, online wallets like Paytm and FreeCharge are very popular now a days.

RBI makes it mandatory for the banks to offer the facility of passbook or statement of account to all its customers. To comply with this requirement, almost all the banks have started offering statement of account. Further, to make it more convenient, banks send statement of account to their customers on the e-mail id registered with them. This e-statement of account has multiple advantage over the traditional passbook or statement of accounts, viz.-

(i) Customer does not need to go branches to update their passbook or wait for the statement of account to come through post. While in case of e-statement, customer receives it instantly.
(ii) Further, e-statement of account is more secure and its usually password protected and only the customer can open it.
(iii) You can easily refer it at anytime and anywhere in the world. You just need internet connectivity.

Some of the banks have also introduced the concept of e-passbook.
Almost all the banks have also started receiving Form 15 G / H and issuing form 16A to their customers. These digital forms have advantages similar to that of e-statement of accounts.

3. E- KYC

Every bank is required to follow certain customer identification procedure while undertaking a transaction either by establishing an account based relationship or otherwise and monitor their transactions.
Banks undertake Know Your Customer (KYC) process to identify their customers. KYC has been a very important task of a bank as any lapse in such process would expose the bank to legal and regulatory risk.

RBI has recently clarified that the e-KYC service of Unique Identification Authority of India (UIDAI) shall be accepted as a valid process for KYC verification under the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005. It clarifies that:
(a) the information containing demographic details and photographs made available from UIDAI as a result of e-KYC process is treated as an ‘Officially Valid Document’; and
(b) transfer of KYC data, electronically to the bank from UIDAI, is accepted as valid process for KYC verification.
In such e-KYC process, the banks obtains authorisation from the customers authorising UIDAI by way of explicit consent to release his/her identity/address through biometric authentication by way of finger print or iris scan.

Some of the banks have started with OTP-based e-KYC for on-boarding of customers. In this process, the customer does even need to do biometric authorisation for releasing his identity rather the customer receives OTP on his mobile number (mapped with his Aadhaar) available with UIDAI and the same is used to authorisation. This is a quicker option than the biometric authentication. By this method of OTP-based e-KYC, the customer can open his account anytime and anywhere. It is to be noted that although account open by means of OTP-based e-KYC has certain restrictions, for e.g. the aggregate balance of shall not exceed rupees one lakh and the aggregate of all credits in a financial year, in all the deposit taken together, shall not exceed rupees two lakh.

4. C-KYC

Another initiative taken by the government is establishment of Central KYC Records Registry (CKYCR) to receive, store, safeguard and retrieve the KYC records in digital form of a customer.

Government of India has authorised the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), to act as, and to perform the functions of the CKYCR.

The ‘live run’ of the CKYCR has started with effect from July 15, 2016 in phased manner beginning with new ‘individual accounts’.
Using this CKYC facility, the bank can verify the identity of the customer and perform the initial due diligence of the customer using the KYC identifier. KYC identifier is a unique identifier for the customer generated by CKYCR.
Using CKYC, the bank can perform below activities:
(i) Search;
(ii) Upload of customer’s KYC information;
(iii) Download of customer’s KYC information; and
(iv) Update of customer’s KYC information

CKYC has not yet implemented fully and once implemented fully, it will go a long way in revolutionise the KYC process in particular and banking in general.

5. Anti- Money Laundering (AML) Solution

Money is the key objective for most of the criminal activity. Banks and other financial institutions are used by criminals to launder the money received through criminal activity. The use of banks and other financial institutions is a great concern the management of such institutions, regulatory and legal authorities. Number of initiatives has been taken to contain the risk of money laundering.
Money laundering basically involves three steps:

(i) Placement;
(ii) Layering; and
(iii) Integration

Thus, it is imperative upon banks to safeguards their organisation from being used by criminals. Earlier banks used to receive information from the customer at the time of on-boarding and later screen them against list of prohibited individuals and entities. This used to take lot of time and there were lots of chances of mistake.

Some of the institutions have started providing AML solution, which is quick and easy to use. A customer can be screened against sanction list issued by various organisations with few click of computer. Further, such solutions also provide facilities of transaction monitoring and reporting of various forms / reports to the regulator very easy.

6. Payment Mode:

Cash deposit followed by cheque has been two most popular mode of payment in India. However, electronic means of payment i.e. NEFT (National Electronic Funds Transfer), RTGS (Real Time Gross Settlement) and IMPS (Immediate Payment Service) has gained popularity in recent years.

Further, after demonetisation, Unified Payment Interface (UPI) has become the most preferred mode of transfer. It is a quick and easy way to send and receive money using without entering additional bank information. For using UPI, the customers need to create a Virtual Payment Address (VPA) of their choice and link it to any bank account. The VPA acts as their financial address and users need not remember beneficiary account number, IFSC codes or net banking user id/password for sending or receiving money.

Such electronic transfers are instantaneously (except NEFT) and the customer does not even need to visit branches. This is secure also as there is no physical movement of cash. Even for NEFT, RBI has recently introduce 11 additional settlement batches during the day (at 8.30 am, 9.30 am, 10.30 am ……… 5.30 pm and 6.30 pm), taking the total number of half hourly settlement batches during the day to 23.

To promote electronic mode of payment, the Government has launched Bharat Interface for Money (BHIM) app. BHIM app uses Unified Payments Interface (UPI) and by using this customer can make instant bank-to-bank payments and pay and collect money using just Mobile number or VPA.

7. Archival of Documents:

Another important aspect of digital banking is to maintain a record of all transactions, the nature and value of which may be prescribed.

As per the PMLA, the account opening records including identification documents should be kept for 10 years from the date of cessation of the transaction/ relationship between the customer and the bank and transaction records including credit/ debit slips, cheque and other form of vouchers. The terms “cessation” generally means closure of account.

Aforesaid requirement of preservation of records is usually cost lots of money to the bank. However, digital banking where there is minimal requirement of physical documents has cleared this concern of banks to a large extent. Digital documents are easy to transfer, archive, search and involves less costly.

8. E-mail and Fax indemnity:

E-mail and Fax indemnity is an important tool in hands of banks to save themselves from the liability arising from use of online or digital mode of sending instructions. In this document, the bank make customer aware of risks involved in using e-mail or fax as mode of sending instructions to banks for transacting with bank and take confirmation from the customer that customer shall indemnify the bank if any liability arise out of use of such mode by the customer.

9. Robot:

Small-time private sector lender City Union Bank was the first among Indian banks to introduce robot in its branch last year. Since then many banks (HDFC, Canara Bank etc.) have started using humanoid robots to assist its customers for service ranging from guiding customers in relevant counter, account balance, interest rate on different products, charges, transaction history etc. By integrating such Robots with Core Banking System of the bank, banks can offer many more services to the customers.

10. Queue management system:

Banks can even manage customers at their branches by using app-based token. Instead of using paper challan, Digital Challan can be used to facilitate to digitally initiate request by customers for services like cash deposit, fund transfer and cheque clearing etc.
Digital Feedback System and grievance redressal mechanism can be another step in direction of a digital bank.

11. Conclusion

Thus, we have seen that digital banking is a reality in India. Every day new services are being added under this ambit. This has made the life of people much easier. However, there is reluctance on the part of customers to fully trust it. People have to adopt digital banking. Demonetisation has played an important to nudge people in this direction. But Banks have to demonstrate that digital banking is not only convenient but also secure. Further, if implemented properly and encouraged, digital banking will go a long way to achieve financial inclusion.