Banking Article, Banking Finance 2021, Banking Finance November 2021

Phygital Banking: Way Ahead for Indian Banking Industry

The banking sector has witnessed a massive transformation in the last few years. The shelf life of physical banks has reduced immensely. In last 5 years or so the internet explosion in India marked the watershed moment which initiated the radical shift of things from physical to digital. Increasing numbers of Fintech apps and neo-banks have more or less replaced traditional banking, at least in urban India.

Phygital Banking:

The word Phygital is a blend of two words i.e. Physical and Digital. So phygital Banking is a form of banking that combines the comfort of digitalization with the trust of presence of a brick and mortar bank branch. It is a model that integrates convenience banking, mobile banking, internet banking and personalized banking with visiting a branch for cash withdrawal/deposit, locker operations and any other such requirement. Phygital Banking is making inroads to take banking operations to a new dawn.

Need for Phygital Banking

The banking sector has been progressing in terms of technology and therefore, digital customers want real-time solutions for their problems. The Covid-19 pandemic is ushering in a new, digital-oriented way of life for many people. Under lockdown restrictions, digital became the primary channel for retailers, doctors, governments, property, auto sales and banks. Now, the consensus is that many consumers will take a long time to return to regular physical engagements – and some may not come back as this has become the new normal.

But banks should not be tempted to ditch their physical presence altogether. This is because you would be reluctant to put all your hard-earned money to a bank that is present only virtually and not physically. If a bank has many branches in operation, it boosts the confidence of customers on that bank. A good portion of customers still want a physical branch despite using mobile banking. However a hybrid of offline and online engagement is the best way forward.

Though the online payment platforms like GPay, PayTM and many others have acquired a good market share in online payment industry but they do not have a robust grievance redressal mechanism and many customers are not happy with the way the failed transactions are being addressed. As they do not have any physical presence to go, that adds to the misery of the customers and people started to loose trust on them.

So there is a need for this form of banking to run a successful banking business and to gain a more extensive market share. Phygital is making its inroads into banking operations because banks have realized that it is a lever that connects two essential aspects of banking that is customer confidence and experience. The success of this baking depends on consolidating the experiences of traditional banking and modern banking to make the journey of customers seamless and complete.

Advantage of Phygital Banking:

Enhanced customer experiences

Tech savvy customers who are used to with quick process want instant and easy access to all the options, whether digital or physical. Phygital banking provides them with a viable solution in which they can easily shift their choice of engagement with banks. They can use digital facilities or talk to bank staff to resolve their queries.

Engaged Customer-Banker relationship

It provides facilities that strengthen the relationship with customers. It ensures the existence of branches and builds trust and facilitates the experience that makes the customers satisfied.

Increased customer value

Banks continue to invest in raising new capabilities, and the phygital mode of banking has increased customer value many fold. Birthday wishes, notification and information through SMS and other personalized services will definitely take the banking experience for customers to a new level.

Reduced costs

The transaction cost for banks using physical mode is almost 10 times more that using digital mode. Phygital mode of banking have reduced costs as the number of customers visiting branch and number of transaction using physical mode will be reduced substantially. It has automated repetitive backend and frontend tasks, and it has also helped in reducing the time to process documents or even in opening a bank account.

Retained Trust

Another advantage of Phygital is that it allows traditional visits to a bank branch for those customers who cannot keep up with digitization in banking, and in this way, banks ensure trust and comfort that ultimately leads to customer satisfaction.

Access to a wider market

Digital banking is not widely adopted by people in rural areas. This is due to a lack of knowledge and faith. Phygital can be the solution to it, especially at a time when the world is discussing open banking regulations so that banks can be more transparent and secure. Phygital banks build a connected ecosystem that helps them in finding prospective customers and gives access to a wider market.

The Pandemic and Phygital Banking:

The pandemic has accelerated most banks’ digitalization initiatives. If the 2008 recession caused a boost in financial technology innovation, appetite for experimentation, and a wave of fintech start-ups, then this time around it is more about delivering real change.

In order to retain this prestige and their important link with communities, the model of branch banking will have to be turned completely on its head in the post-COVID-19 era.

In the new normal, consumers will carefully pick and choose how to spend their time interacting. Bank branches, already a low-priority destination for most of the people, will likely to struggle to remain equally significant.

Banks must break out of the traditional branch model and focus on how to deliver specific, high value, physical interactions and experiences that can complement a digital banking core. In true complementary fashion, digital technologies should also be used to augment physical experiences and make services faster, more secure, and more convenient. This is the essence of a true phygital strategy.

According to an article in The Hindu Business Line, ACI Worldwide released a new report that indicated more than 70.3 billion real-time payments transactions were processed globally in 2020, a surge of 41 per cent compared to the previous year. This comes as the Covid-19 pandemic dramatically accelerated trends away from cash and cheques towards greater reliance on real-time and digital payments, according to the report.

According to the report, India retained the top spot with 25.5 billion real-time payments transactions, followed by China with 15.7 billion transactions. The report speculated that by 2024 the share of real-time payments volume in overall electronic transactions will exceed 50 per cent. This will further touch 71.7 per cent by 2025.

Way Ahead:

If we look at the prospect of banking, phygital could well be the most acceptable and safest mode of banking for many consumers as it provides comfort factor as well as efficient digital banking practices. Banks are expected to leverage the trust of a physical network and the power of digital to equip the customers to manage their money.

If banks can amalgamate the two well, this hand-holding will enable the customers to bank confidently without any apprehensions. The cost-efficient, scalability, and the fact that it removes the barriers in banking, thereby allowing more people to bank, will cause more adoption of this form of banking in the future.

Digital is springing high but it doesn’t mean that physical banking will not be in the state of need. The first step of Phygital banking is that all brick and motor banks should opt for digital banking with the implementation of cutting-edge technologies for its operations. Incorporating Artificial Intelligence, Distributed Ledger Technology (DLT), open banking, ensuring cyber security and enhancing the digital experience of the customers will transform a conventional bank into a Digital one. The addition of human interaction to this digital transformation is what takes banking to a whole new level.

Here banks can learn from the digitalization of other industries such as manufacturing, consumer packaged goods and utilities. Across these, we see an increasing focus on technology innovations related to voice as a channel, AI-powered chatbots, augmented reality, social virtual reality, hyper-personalization, gamification, secure video interactions, digital ecosystem plays and others.

India’s journey of creating a digital financial infrastructure has been characterized by collaboration between the government, the regulator, banks, and fintech. This has helped to advance the country’s goal of enabling financial inclusion and also provided rapid payment digitization for citizens. The pandemic has further accelerated the adoption of digital payments with many first-time users adopting digital payments and significant uplift by merchants. Apart from the conventional online services like internet banking, mobile banking etc. there are many steps which are being taken by individual banks as well as central bank RBI under EASE agenda of Ministry of Finance, GOI.

 “Dial a Loan”, Digitally-enabled doorstep facilitation for initiation of retail and MSME loans.

“Door Step Banking”, An initiative for delivering few selected banking services at the door step of the customers.

Straight Through Processing”, an end to end online processing of MSME loans upto Rs 5 Cr and linking the server with bank’s core for smooth flow of data


Telescoping into the future, Phygital Banking will be the most acceptable and safe banking activity for a large number of customers since it gives space to both the comfort factor and efficient digital banking practices. Relying on the extremism of one concept is of no use but the amalgamation of both will help us move onward. The need of the hour is the transformation of physical banks into Phygital ones to establish humanized digital experiences.

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