Banking Article, Banking Finance 2022, Banking Finance November 2022

New kid on the digital lending block

Intending to expand and escalate financial inclusion, Prime Minister Narendra Modi inaugurated 75 Digital Banking Units (DBUs) throughout 75 districts on October 16. The DBUs are being set up to guarantee the gains of digital banking touch every nook and corner of India. The 75 DBUs in 75 Districts, wrapping all the States and Union Territories, were publicized in the Union Budget 2022 by Finance Minister Nirmala Sitharaman to memorialize 75 years of India’s Independence.

According to the Prime Minister’s Office (PMO), DBUs will be brick-and-mortar outlets and will offer a wide range of digital banking services to people. They are checking balances, opening savings accounts, printing bank passbooks, transfer of funds, investment of money in fixed deposits, loan applications, stop-payment instructions for cheques issued, applications for both credit and debit cards, payment of tax and bills, and registering of nominations. The PMO also stated that DBUs will empower customers to have cost-effective, expedient access and a greater digital experience of banking products and services throughout the year.

Unveiling the 75 DBUs, PM Modi said DBU is one more special move in the current campaign to streamline the lives of the common public. He also said that the country’s attempt to emphasize digital banking has helped to attain transparency in the working of the banking system. He has insisted banks fix goals to bring as many people as possible into the digital banking fold and urged every bank branch to bring at least 100 businessmen in their area within the fold of 100 percent digital banking.

The RBI Governor Shaktikanta Das underlined that digital banking had arisen as an ideal avenue for providing banking services throughout the country. He has stated that the formation of DBUs will enlarge the digital infrastructure in India and this will perform as an enabler and ease customer experience through smooth banking transactions. He also said that banks are free to involve business correspondents to inflate the footmark of DBUs and these physical units will act as pivotal points for developing customer knowledge and education about using digital amenities for doing banking operations.

Finance Minister Nirmala Sitharaman mentioned that these 75 DBUs would prepare people who do not have a personal computer, laptop, or smartphone to be able to retrieve banking facilities and they can do it in a paperless mode. She also mentioned the operations in DBU will be available 24×7 and promoting digital banking is crucial because it will be cost-effective for consumers. She believes that the setting up of these 75 DBUs by the Indian Banks Association will give energy to digital banking in India and assist the economy move to a cashless and comprehensive economy.

Not the new type of banks

DBUs, in layperson’s terms, are specialized branches for providing digital banking products and facilities. DBUs will be paperless, and they will also operate as digital financial literacy centers. They are specialized fixed-point business units or hubs lodging minimum digital infrastructure for providing digital banking products and facilities. These products and facilities will be provided in both self-service and supported styles. It has a self-service zone for customer transactions using Interactive ATMs, Cash deposit Machines, Interactive Digital Walls, Net banking Kiosks or Video calls, and Tab Banking. The assisted zone in a DBU is manned by few bank staff.

The key purpose of launching DBUs is to enhance the obtainability of digital infrastructure for banking amenities. This will also aid accelerate and broaden the spread of digital banking facilities. DBUs would be for digital banking like PCOs (in the late nineties) were for long-distance calling or Internet cafes for browsing. This setting up of DBUs is one more significant move in the country’s banking industry journey, from being physical to phygital to digital-first to digital only. NITI Aayog has pitched for “digital only” banks to be set up in India.

Each DBU must provide some minimum digital banking products and self-service execution facilities. However, banks have the liberty to provide any other product or facility on top of the minimum bouquet to cater to the precise requirements of the service zone. Any product or facility that can be delivered digitally by way of internet banking or mobile banking can be delivered in the DBU.

DBUs can be established by all national scheduled commercial banks excluding regional rural banks, payments banks, and local area banks. Presently, 11 public sector banks, 12 private sector banks, and one small finance bank participated in the programme. Currently, each of the 29 States and eight Union Territories has got at least one DBU. Karnataka, Odisha, Rajasthan, Tamil Nadu and Uttar Pradesh have got four each.

Will it change the landscape of banking?

Although digital banking has numerous advantages such as flexibility, time-saving, environment-friendly, lower overheads, banking benefits, online bill payments, etc., it has few challenges. Technology challenges, IT practices, certain cultural issues, security issues, industry lethargy, and workplace constraints have affected the widespread acceptance of digital banking.

Many people shrink back from digital banking due to security reasons and many instances of cybercrimes being reported daily.They feel anxious about online scams.Moreover, navigating through the website of a bank may be difficult for first-time users. Opening an account could also take time as some sites ask for many personal details including photo identification, which can inconvenience the potential customer. Because of this inconvenience and complexity, they may feel discouraged to use digital banking services.

Most customers like the personal touch and personalized service provided by staff in bank branches. Many Indians are also reluctant to contact call centers and bank customer contact lines to tackle problems related to the online bank account. Besides, India has one of the lowest broadband connectivity penetration rates in Asia compared to Japan, Taiwan, Korea, and Singapore. Many in smaller cities and towns still use a dial-up connection. Slow connectivity speed discourages users to use digital banking.

Digital banking makes it possible for banks and their customers to execute their business from anywhere in the world. But it is difficult for regulatory authorities to enforce finance laws. Additionally, every nation has different regulations. Therefore, it is difficult to impose the same rules and regulations in every country.Customers using digital banking services might become irritated by frequent needless emails and updates. Customers might get overly marketed and become annoyed by those types of notifications.

On the whole, it is good that the idea of DBUs, proposed in this year’s Union Budget, is becoming a reality. The launching of DBUs is anticipated to give a booster dose to the outreach of banking services, taking them beyond metros and large cities, to regions where financial inclusion, access to capital, and formalization of credit remain a challenge.Today digital banking has taken a new form in the world of technology. The banking industry is reshaping itself and progressing to a technological approach from the traditional approach. Digital inventions are crafting a new picture of banking services. Due to the adoption of digitization, the banking sector in India is facing some remarkable changes as well as obstacles. As we are living in the digital era, it is not possible to avoid the growth and services of digital banking. Everyone uses modern mobile devices called smartphones, which can be easily used to access many digital banking services.The banking sector has also become more competitive with the arrival of digitization and the digital India program for guaranteeing better customer service, thereby accomplishing the goal of a cashless economy. Digitization in banking has started shifting the paradigm of cash and paper-based banking to cashless and paperless banking.

For DBUs to find acceptance and win the confidence of customers, banks must promise that the local ability is coached and permitted to man these outlets, and recurrent transfers of staff at these outlets must be avoided. Secondly, while internet penetration has amplified, the quality of the internet continues to be a problem in tier-2 and below regions. For the effectual closure of a transaction, this problem should be solved. In addition, the government and the banks including the RBI should attempt sincerely to solve all obstaclesinherent in the digital banking system should be erased. Definitely, the 75 DBU touchpoints will offer sufficient learnings which can be used to improve this concept in the future.Still, only time will tell ‘will the DBUs differentiate themselves from other sets of digital lenders on matters of governance and ethics?’For now, the new kid on the digital lending block will be keenly watched for its performance and adherence to compliance norms, and data privacy, among others.

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