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The impact of digitalization on banking operations in india. It delves into the history of digital banking, its evolution, and the current status of india in the digital space. The document also examines the advantages and challenges of digitalization in the banking sector, including legal frameworks, security concerns, and the role of artificial intelligence and data analytics. It further analyzes the impact of digital banking on customer satisfaction and the future of banking in india.
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A Project Submitted to HSNC UNIVERSITY for partial completion of the degree of Bachelor in Accounting and Finance Under the Faculty of Commerce and Management BY LEAH MANOJ Roll no. 129 Under the Guidance of Dr. RIYA NATHANI Kishinchand Chellaram College D.W. Road, Churchgate Mumbai- 400020.
This is to certify that Ms. Leah Manoj, Roll no. 129 has duly completed her project work for the degree of Bachelor in Accounting and Finance under the faculty of commerce and management and her project is entitled “ A study on Impact Of Digitalization On Banking Operations.” under my supervision. I further certify that the entire work has been done by the learner under my guidance and that no part of it has been submitted previously for any degree or diploma of any university. It is her own work and facts reported by her personal findings and investigations. Course Coordinator I/c Principal Dr. Ritika Pathak Dr.Tejashree Shanbhag Project Guide/ Internal Examiner Dr. Riya Nathani External Examiner Date of Submission
I the undersigned Ms. Leah Manoj hereby, declares the work embodied in this project work titled “ A study on Impact of Digitalization on Banking Operations” forms my own contribution o the research work carried out under the guidance of Dr. Riya Nathani is a result of my own research work and has not been previously submitted to any other University for any other Degree/ Diploma to this or any other University. Wherever reference has been made to previous works of others, it has been clearly indicated as such and included in the Bibliography. I, hereby further declare that all information of this document has been obtained and presented in accordance with academic rule and ethical conduct. Name and Signature LEAH MANOJ Certified By: Name and signature Dr. Riya Nathani
A key component in the growth of a country’s economy is financial system which plays vital role in the development of the country by capital accumulation and technological progress by increasing savings rate, mobilizing and pooling savings, producing information about investment, facilitating and encouraging the inflows of foreign capital as well as optimizing the allocation of capital. But on the other hand this system contributes significantly in air, water, land fill and other types of pollution thereby damaging the environment and become the biggest contributor to climate change. The concern for environmental sustainability by the banks has given rise to concept of green banking. Green banking means promoting eco-friendly practices and reducing carbon footprint from banking activities by making use of online banking instead of branch banking. it aims at banking processes and the use of IT and physical infrastructure as efficient and effective as possible. Green banking avoids paper work and focuses on use of electronic transactions by customers. The introduction of digital banking has revolutionized the banking sector and modified the whole procedure of simple bank transfers. It has facilitated the customer assisting them to check their account details, pay online bills and transfer money from one account to the others I as faster way. Though the purpose of introduction of digitalization in financial system was to transit from conventional to convenience for both the customers and banks itself but it also plays its role in protecting environment by making less use of papers. Paper less banking helps in controlling deforestation thereby helps in achieving sustainable development goals by contributing in protecting cutting of trees as well as provides convenience to the customers and banks. The paper attempt to analyze the impact of transition of financial system of India from traditional to digitization on environment. Also paper focus to analyze the contribution of increased digitization of Indian banking system in environmental sustainability thereby making contribution in the achievement of sustainable development goals over the years since its inception in India. Keywords:-Development , environment, financial system, sustainability, digitization
Digitalization is the process of converting information into a digital (i.e. computer- readable) format, in which the information is organized into bits. The result is the representation of an object, image, sound, document or signal (usually an analog signal) by generating a series of numbers that describe a discrete set of its points or samples. The result is called digital representation or, more specifically, a digital image, for the object, and digital form, for the signal. In modern practice, the digitized data is in the form of binary numbers, which facilitate computer processing and other operations, but, strictly speaking, digitizing simply means the conversion of analog source material into a numerical format; the decimal or any other number system that can be used instead. Digital banking is the move to online banking where banking services are delivered over the internet. The advantages for banks and customers are providing more convenient and faster banking services. Digitalization has turned the world upside down for almost all industries that form our everyday ecosystem. With a truckload of opportunities coming their way, enterprises now have tremendous room for growth. This essential merit comes from the easy and targeted customer reach. So, technology has certainly put forward a radical baby in terms of digitalization. While there is no doubt it has heavily impacted several sectors, we’re here to look at digitalization in the banking sector. Banking is one of the very first sectors that witnessed the storm of digitalization. Machine learning in banking helps in fraud detection, Transactions went online more efficiently than ever, and there was so much more. However, it was shocking to see that several popular banks are very new to the list of digitalization. Most of these names were trailing behind until last year. Nevertheless, digitalization has opened new doors for the banking sector as well as its customers. So, let us take a look and explore the significant benefits of digitalization for banking institutions. K.C College Page | 1
and user experience. The market provides cross platform front ends, enabling purchase decisions based on available technology such as mobile devices, with a desktop or Smart TV at home. In order for banks to meet consumer demands, they need to keep focusing on improving digital technology that provides agility, scalability and efficiency. 1994 - Online banking is built into Microsoft money. 1,00,000 households begin accessing their bank accounts online. Stanford Credit Union begins offering banking services via their website, paying the way for credit unions and banks across the country. 2001 - Online banking hits 20 million users, with 8different U.S. banks achieving at least a minimum of 1million online users. 2002 - Avoka was founded to help banks and financial institutions in their digital transformations. 2007 - The launch of I phone begins shifting digital banking from desktop computers to smart phones. 2009 - Online banking hits 54 million users in the United States. 2016 - Millennial succeed in fundamentally shifting digital banking preferences. 2021 - Online banking users in India currently are 47million in India. Banking and Financial Sector has gone through numerous progressions and enhancements over the most recent couple of years and is in a steady condition of improvement. Digitalization has brought the banking business new plans of action, advancement ideas and zones of upgrades, from internet banking to money related exchanges. These New executions to the Financial Sector require the workers just as the clients to know about the quickly changing banking condition and the general condition of progress in the budgetary segment. Presently, digitalization and change the board are one of the significant turbulences that are changing the banking business always and with awful administration, the outcomes can be dependable. During the following many years, banking and budgetary divisions are growing quicker than any K.C College Page | 3
time in recent memory and subsequently change the executives and digitalization are at a key situation on the best way to pick up market advantage against equaling banks. In Today's Technology insightful client base, it is significant for Banks to adjust the most recent innovation, to such an extent that banks can find the movement with which client inclinations changes. Adaption of fresher innovation is likewise basic to challenge contender banks and different foundations in offering items and administrations in the commercial center. (Ref. Indian Banking division experiencing significant change). Likewise, with the New period of Digitalization in the banking part, the day by day activities are getting quicker, conservative, and simpler for clients to utilize and in this manner each bank is getting a handle on to modify their own tasks to fit the necessities of a requesting client.
Banks in India have witnessed a radical change from conventional baking to convenience banking. Today they are poised for digital banking rapid pace the need for computerization was felt I the India Banking sector in late 1980s, in order to improve the customer service, book keeping &MIS reporting. In 1988, RBI set up a committee on computerization inn bank sheaded by Dr. C Rangarajan. Banks began using information Technology initially with the introduction of standalone PCs and migrated to Local Area Network (LAN) connectivity. With further advancement, banks adopted the core Banking platform. Thus branch banking changed to banking. Core Banking Solution(CBS) K.C College Page | 4
recommendations to achieve various objectives. Digitalization is the new buzz or the latest expression in all the sectors. It refers to the use of digital technologies to change a business model and further provide new revenue and value-producing opportunities. The world has seen a rapid advancement in technology over the past several decades. Technology has left an indelible mark on everything and anything that human beings can fathom. There has been seen technology outburst in all sectors and banking has been one of the sectors to adopt information technology. All over the world, banks are making a tremendous stride towards digitalization to cope up with the competition and provide their clients with the best services.
“Digital Banking” refers to digitalizing the traditional methods of banking to conduct banking transaction more smoothly. Contrary to traditional banking, digitalized banking aims to make versatile computerized products and services to fulfill the requirements of their digitalized clients. The introduction of digital banking has revolutionized the banking sector and modified the entire procedure bank transfers, it has facilitated the purchasers assisting them to see their account details, pay online bills and transfer money from one account to the opposite during a faster way. This has helped the end-user to enjoy a methodical financial life, further embracing hassle-free online banking. The need for computerization was felt within the Indian banking sector within the late 1980s, where there was a need to enhance the customer service, book-keeping and MIS reporting. In the late 1980s, India was marred by various financial reforms and therefore the banking sector felt a requirement to enhance customer services and computerization of recording and accounting of knowledge. A committee was found out in 1988 by the Federal Reserve Bank of India which was headed by Dr C. Rangarajan to review Computerization within the Banking Sector. After the introduction of the Liberalization, Privatization, and Globalization (LPG) policy, the method of digitalization picked up the pace alongside the change within the Indian Economy. The method of computerization gained pace with the reform within the Indian economy in 1991-92 at the time when private and foreign banks entered the Indian market meaning K.C College Page | 6
to digitalize the economy and improve the services provided by the general public sector banks to the purchasers. 1996-1998 were the years of internet banking/e-banking adoption in India after which, within the year 2000, the govt of India enacted the Information Technology Act, 2000 to provide legal recognition to electronic transactions and other means of electronic commerce. The digitalization within the banking sector is often seen in India since the establishment of ATMs. Further developments like Telebanking, Electronic Compensation Service, Electronic Funds Transfer system, MICR, RTGS (Real-Time Gross Settlement), Point of sale terminal, etc. are often seen within the banking sector. E-banking has resulted in reducing costs drastically and has helped generate revenue through various channels. Various steps and initiatives had been adopted by the RBI and National Payment Corporation of India in strengthening the Payment and Settlement Systems in banks just like the launch of United Payments Interface (UPI) and Bharat Interface for Money. It is due to such initiatives and platforms, customers now don’t have to store or carry cash alongside them anymore, they will now make transactions anywhere at any time.
Today banks aim to provide fast, accurate and quality banking experience to their customers. Today, the topmost concern for all the banks in India is digitization. The Indian Government is at a high rate is promoting digital transactions. The launch of the United Payments Interface (UPI) and Bharat Interface for Money (BHIM) by National Payments Corporation of India (NPCI) are the 2 major significant steps for innovation within the Payment Systems domain in India. UPI is a mobile interface where people can make instant funds transfer between accounts in several banks supported virtual address. As per the RBI Report of 2016-17, there are 2,22,475 Automated Teller Machines (ATMs) and 25,29,141 Point of Sale devices (POS). Implementation of electronic K.C College Page | 7
The moment the question is put forward, there is no challenge finding a couple of answers that just fit right. This makes it pretty clear that the banking sector has seen many goods come out of digitization. However, if we have to talk to the very details, here are five major ways digitization has been advantageous to banking. Increased customers If there’s one thing we cannot deny, it is the increased customer base that digitization brings to a sector. The banking domain has been no exception to this simple rule. An increasing number of people are relying every day on online banking solutions. The contrast of slow and cumbersome traditional banking also works in favor of digital banking. However, digitization has increased the customer base in the banking sector.While Fintech Benefits for the Banking sector, you can see a great change in everyday processes. Increasing the consumer base is one of the most noteworthy changes that digitalization in banking has brought around and arguably one of the best. Enhanced efficiency A common question that makes its way to us is: Why is digitization necessary for banking? The advantage of efficiency answers the problem better than any other benefit. In a world that believes in speed and accuracy, digitization in banking has introduced both to entirely new levels. Banking processes are now conducted with a lot more ease and efficiency. As a simple process, digitization has changed the entire mathematics and art of banking by bringing in ease, efficiency, and extra productivity on the table.Examples of digitization in banking are seen in essential processes such as electronic signatures, smartphone-based banking applications, quicker transactions, and so much more. So, you can say that digitalization has brought around enhanced efficiency in banking processes. This seems to be working well for banks as well as customers. A user-friendly experience If we take a stroll towards the artistic side of digitalization regarding banking, we see that it has crafted a unique, user-friendly experience that never existed before. While banking earlier was symbolic of a slow and tiring queue that never ends, it now feels like a few simple clicks. Banking now flaunts a user-friendly garb and has become a lot more desirable and efficient. This scenario was not the case until late and has been a massive convenience to many across the globe. There is no room to question the actual place of digitization in this scenario. K.C College Page | 9
This confirms that the impact of digitization on the banking sector has been trailblazing and undeniable. After considering public behavior, spending patterns and preferences, and other essential data, the banking sector now seems to have reached the vantage point after decades. If it wasn’t for effective digitization, would we still be looking at the same world? CostEfficiency: Though it isn’t an advantage that is always mentioned, it is one that we cannot think enough about. Digital processes have brought in a noticeable amount of cost efficiency, which has been a useful trait for the banking sector and the consumers. Digitalization has enabled easy and super-quick cashless transactions, consequently cutting down so much of intermediary fees. One now saves up on so many fronts through paperless payments. Neo banks are other exciting banks that have taken over the buzz by making room for digital cards and more. Thus, one cannot determine the role of digitization in banking. By merely touching the banking sector, digitization has brought around tremendous ease of operation. It has connected the world successfully like a global village, and this is where you cannot deny the importance of the banking sector and digitalization. DataProtection: This is the best advantage of digital technology in banking. The process of ensuring consumers’ data rights can be complex. It has been shown that brick-and-mortar banks can amass a huge amount of data through digital transformation, which can be used by them or other businesses for their purposes. Furthermore, customers will not be able to benefit from the economic benefits generated by their data. With increasing awareness of the overuse of personal data by customers, Chinese banks may lose the ability to expand their pool of data assets and retain their positive relationship with customers.One solution that the industry has adopted to solve this problem is the creation of data accounts, a form of currency that allows customers to store their data as money. As a result, the banks have the option to use the data in these accounts at a market-determined price. Artificial Intelligence (AI) Support If used correctly, artificial intelligence has the potential to revolutionize the banking industry. It would improve its security capabilities K.C College Page | 10
complementary. For instance, digital hardware and services are the biggest energy consumer for banks. In 2021, a study by Galaxy Digital found that the banking sector used 263.72 terawatt-hours of electricity annually, of which bank cloud services used 238.92 terawatt-hours. According to estimates by China Construction Bank, the entire amount of electricity used by bank data centers around the world by 2025 will be equal to that used by the world’s tenth-largest economy in 2021. Furthermore, the disposal of electronic waste is yet another significant difficulty because the lifespan of the electronic equipment employed by these centers is typically around five years. Banks should consider the detrimental environmental effects of digitalization in banking rather than concentrating solely on technology. The Chinese banking sector prioritizes coordinating green and digital development, as shown by the fact that green data services are now a crucial factor when Chinese banks choose their suppliers. Independent Digitalization The ability of banks to satisfy the financial demands of long-tail consumers, including the unbanked and under-banked, has been a critical result of digital transformation and has helped to address overall economic unfairness somewhat. However, the digitalization of society could also lead to new unfairness.For instance, it is still difficult to guarantee that persons at the bottom of the financial sector can access banking services. As per the digital global overview report, Only 62.5% of the world’s population still utilizes the internet. Future bank financial services will be inaccessible to over 3 billion people if they are only offered digitally. Moreover, to conduct banking, any user will require at least an electrical gadget and a network connection, increasing the banking cost. Therefore, banking in this manner places various demands on having operational and technological knowledge and being financially savvy, an implicit bar that may deter many. Therefore, safeguards are required for banking to go digital to preserve the financial freedoms of underprivileged people. K.C College Page | 12
Use of Virtual Cards Amid the current crisis, virtual cards are now a reality. These virtual cards, which can be used to make online purchases, are issued by the supplier.By 2021, the industry anticipates that 20–25% of the volume of accounts payable will be made up of virtual card payments rather than automated clearing house (ACH) transfers and checks. Due to their benefits, these cards are now being used more and more frequently for B2B payments. Due to the widespread acceptance of virtual cards among suppliers and their simplicity and affordability, they make purchasing easier for businesses. This kind of card has a single-use card number and often expires after a month if not used. This helps to prevent online fraud, and because the card is virtual, it cannot be duplicated. With credit cards, it is impossible to offer customized incentives and offers to depend on a set of cards, but this is conceivable with virtual card programs. They offer improved cash flow management and internal control. Data-driven decisions Digitization has induced the “pragmatic” and “accurate” element in sectors it has touched. For example, if we talk about digitization and banking, most significant decisions are now data-driven. The great thing about data-driven decisions is that they are less likely to fire back as they have been carefully collected from a well- studied demographic. Several technologies have emerged to help banks make better decisions based on what exactly their customer base requires. Such a grass root level change wouldn’t have been easily possible without digitization. One other way digitization has fallen to rescue the banking sector is by helping them with the right decisions based on pure, unalloyed, effective data directly related to consumers. K.C College Page | 13
