Digital Banking Units – a perspective
RBI has recently released guidelines for Digital Banking Units [DBU] in pursuance of budget announcement to open 75 DBUs this year. Hon’ble PM would be launching commencement of operations of DBUs on August 14, 2022.
DBU is a specialised fixed point business unit housing a certain minimum digital infrastructure for delivering digital banking products and services. It will be a fixed business unit operating under the retail banking division of the bank and will deliver new digital products and services and service existing financial products digitally, in a cost-effective, efficient and secure manner with 24X7 availability.
Digitalisation of Banks:
The Reserve Bank of India (RBI) on Thursday said existing banks can open DBUs to offer products and services in both self-served and assisted mode. According to the guidelines of the establishment of DBUs, the services and the products should include,
- Opening of accounts.
- Cash withdrawal.
- KYC updates
- Loans
- Compliant registration
How DBUs are different from existing digital offerings:
- DBU’s are housed distinctly, separate from an existing Banking Outlet with formats and designs most appropriate for digital banking users.
- For the front-end or distribution layer of digital banking front-end or distribution layer of digital banking, each bank would choose suitable smart equipment, such as Interactive Teller Machines, Interactive Bankers, Service Terminals, Teller and Cash Recyclers, Interactive Digital Walls, Document uploading, self -service card issuance devices, Video KYC Apparatus, secured and connected environment for use of own device for digital banking.
- The back end including the Core Banking System and other back office related information systems for the digital banking products and services can be shared with that of the incumbent systems with logical separation.
- Banks are free to adopt an in-sourced or out-sourced model for operations of the digital banking segment including DBUs.
- As the purpose of DBUs is to optimally blend digital infrastructure with ‘human touch’, it should be lined up in a purposeful way to accelerate the digital banking initiatives.
Why DBU’s?
- Cost-effective: DBU’s involve less cost as there is reduction in cost of employment. This is because transactions are digitalised and involves fewer manual operations. This also helps in reducing the number of physical units of banks required as all the processes are automated through digital platforms.
- Quick process: As automation plays a major role, the process is quick, and it helps in reviving up with the current economy. It also helps in easy documentation and hence provides easy access to the customers.
- Enhances value creation: The DBUs work entirely on kiosks resulting in lowering the physical presence. The banks can fast-track the digital transactions which can enhance the value creation from overall economy perspective; hence is implemented and measured on a macro level through revised policies by the Government.
- Data storage: In DBU’s, the data of each customer is recorded by kiosks which reposit the data on a long-term basis and helps in timely access of data whenever required. This avoids the problem of loss of data and prevents client record detriment.
- Operating Model: Customers are in need for a hybrid experience, a combination of never-seen digital experience in terms of speed and convenience, and personal look and feel of the product. The model needs to be seen from different perspective, viz.
- Digital as Business – At the management level
- Digital as New Line of Business – At the next level as separate digital division to take care of digital activities
- Digital Native – New setup with its own technology stack, focusing directly on customers.
Emerging market
Neo-banks presently bridge the gap between the services that traditional banks offer and the evolving expectations of customers in the digital age. They are changing the face of traditional banking and could one day eclipse traditional banks. According to statistics, the global neo-banking market size stood at $47.39 billion in 2021 and is estimated to grow at an astronomical rate (compounded annual growth rate) of 53.4 per cent from 2022 to 2030.
The total digital payment value in 2020 accounted for USD 750 trillion with digital transactions exceeding 900 billion in volume globally Traversing to next stage, DBUs are likely to transform the way people “feel” sense of undertaking banking transactions. Digital Banking Market size exceeded USD 8 trillion in 2020 and is projected to register gains of around 5% from 2021 to 2027.
Advantage over physical branches:
Digital Banks and Neo-banks offer amazing products with high quality interactive capabilities and offer hybrid custom made products to the customers. It helps in reduction of regulatory costs as there is less regulatory process involved competitively. On-boarding of customers on an entirely digital platform may help the customers to have adequate fulfilled service including redressal of their grievances on a timely manner. Digital Banking Units are expected to offer hands-on customer education on self-service and easy access through mobile banking or net banking in the near future.
The convenience of banking from home round the clock in a secured manner with less human interface helps in providing customer centric services. DBU’s also helps in reduction of circulation of money in the economy, encountering inflation in the long-term and reduces the risk of counterfeit note circulation and promotes digital transfers.
Challenges:
Consumers in India still believe in the brick-and-mortar model when it comes to banking transaction where they get more confidence while interacting with front end staff. Still majority of the population believe in going to banks to carry out different transactions. The loans and business products are tough to document digitally and thus requires physical verification. Risk assessment process while evaluating loans needs more advisory-based tailor-made services rather than service-based banking systems as it involves more expertise and insights. Hence minimum physical touch points are required to have an organised banking system. The technical threats such as unencrypted data, spoofing, phishing etc may also needs to be dealt with, due to lack of awareness, weak data management and lack of expertise.
Market to witness ‘Prolific growth’
A recent study, conducted by the strategic consulting and market research firm Blue Weave Consulting, revealed that India digital banking platform market was worth USD 776.7 million in the year 2021. According to the study, the market is estimated to grow at a CAGR of 9.8%, earning revenue of around USD 1,485.5 million by the end of 2028.
As a boost for the Digital Economy, the Centre has proposed to set up 75 Digital Banking Units in 75 districts across India through scheduled commercial banks. In April 2021, NCR Corporation launched the first interoperable cardless cash-withdrawal (ICCW) solution based on the UPI platform which facilitates customers to withdraw cash using their mobile with any UPI. The growth of the India digital banking platform market can be attributed to rapid digitization and growing adoption of advanced technologies, such as cloud computing, the Internet of Things (Internet of Things), Artificial Intelligence, and so on.
Yes, the banking customers are in for interesting and interacting experiences going forward!!