Digitalization in Banks – Trends, Opportunities and Challenges

April 24, 2017by piyush golani0

The banking and financial services sector in India has undergone through disruptive changes in the last decade as far as adoption of technology is concerned.


Yet, this sector faces a number of challenges in the way these institutions serve their present and potential clientele. The banks have not performed well when it comes to getting customers onboard digital platforms in retail as well as corporate segments.


Also, having adopted the technology in terms of digitalization of documents, banks are still facing with problems like unclear images of documents, authenticity of the publisher, documents being incomplete or unaudited, fear of the personal data getting leaked and many more.


With the government providing incentives for digitalization of the economy, it is definitely the success mantra for the banks.


Few Trends and Opportunities:


1. Changing consumer behavior in favor of digitalization


As the market is exposed to disruptive digital services, it is now putting its hands on changing client preference from traditional banking to its digitalization.


Also, India’s demographic dividend is well suited to switch to digital behavior, with the median age of an Indian expected to be 29 years by 2020 and 900 million population falling in the age group of 15-60 years by 2025.


People have actively started using technology to do banking transactions and avail other services because they want more convenience at the cost of paying additional price.


2. Unpenetrated areas and government initiatives


Around 50% of the non-banked population is targeted and progressing towards the goal of financial inclusion, around 160 million accounts have been opened under PMJDY (Pradhan Mantri Jan Dhan Yojna) with Rs. 500 billion being targeted to be transferred directly under DBT (Direct Benefit Transfer).


With this much non penetration and government initiatives to push digitalization, banks have tremendous opportunities and advantages in adopting digital infrastructure.


3. Leveraging increased smartphone usage and mobile penetration


Mobile penetration of around 90% is likely to drive financial inclusion.


Mobile phones are likely to spearhead the digital growth in India, taking into account the expected level of penetration and because the youth of India prefer to use smart phones rather than stand in long queues to avail banking services.


The current and expected widespread reach of smart phones in the country provides a disruptive and low-cost medium, to extend the reach of banking and payments services. Refer the graphs below:















Some Challenges:


  • As per the report of BCG, FICCI, and IBA; 17% of the respondents were unaware about bank’s digital offerings, 35% were aware but were not using, 7% were unsatisfied user and 42% were satisfied users. The challenge here is to convert awareness into usage.




  • 70% of the MSME and 90% of the shopkeeper transactions were done through cash & cheque, only 9% MSMEs collect orders online, and only 5% accept payments online. This is completely unacceptable in a digital world and thus becomes a challenge.




  • The research on retail customers show that out of people not using Mobile Banking apps, 22% do not know how to use it, 18% don’t know about bank’s app and 14% of them have fear of hacking.




The path ahead…

Despite the huge potential and well-established promise of digital financial services, there is a need for the players to adopt a holistic approach on going digital and fusing business strategy with all the elements of their operating ecosystem to create a remarkable customer experience.


Banks may also need to invest in supporting mobile platforms and analytics, customer service through models like multi-lingual voice-based interaction and simplified service offerings.


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