Digital banking services (DBS) have emerged as a critical competitive differentiator. The value proposition of DBS has assumed significance after the introduction of interoperability among ATMs of different banks. Customers of any bank can use any ATM. The onset of supporting institutions like National Payments Corporation of India (NPCI) supporting issue of Rupay cards and entry of fintech companies in offering a digital platform for retail payment transactions is changing the digital payment landscape. Sustained efforts of financial intermediaries disseminating DBS is set to develop a better digital culture at the bottom of the pyramid synchronised with efforts for financial inclusion.
A robust digital space has been built with the ATM network now reaching close to 2,40,000. However, just 17% of them are in rural areas serving 65% of the population. Hence, these areas are underserviced by low density of ATMs. India’s ATM density needs far more intensity to compete with global peers (see infographics). In addition to ATMs, the other digital connect includes self-service digital kiosks, internet banking, mobile banking, digital wallets, apps and payment gateways. The presence of over 33.3 million point of sale (PoS) terminals provides the last mile connect through the use of business correspondents for financial inclusion and outreach. Spread of broadband, affordable data service and increased use of smartphones have converged into a digital wave in financial intermediation.
Demonetisation of high-value currency notes in November 2016 added yet another leaf in the digital journey of banks. The priority in expanding the infrastructure of banks has now strategically shifted from physical to digital.
Increased Digital Connect
DBS could spread much faster with the introduction of Basic Savings Bank Deposit Account (BSBDA) – no frill account — and Prime Minister’s Jan Dhan Yojana (PMJDY) schemes. Such massive connect has created an opportunity to expand the debit card base, touching the one-billion mark, which is no mean achievement. It will now depend upon banks to use such burgeoning customer connect for cross-selling products and services.
Opening of payments banks, and more importantly India Post Payments Bank (IPPB) with potential large touch points, is set to enlarge the scope of digitisation even in the hinterlands. Popular use of quick transmission of funds through Real Time Gross Settlement (RTGS), National Electronic Funds Transfer (NEFT), Bhim app and Unified Payment Interface (UPI) has further enlarged the scope. As a result of intense thrust, digital payment transactions grew at an average annual rate of more than 50% between 2015 and 2017 outpacing other major developing countries.
Based on 5th generation technology with increased scope of robotics, artificial intelligence, machine learning and deep learning tools in financial intermediation, digital banking is set to witness a new phase. Many banks are fast undertaking business process re-engineering activities moving many homogeneous activities, including attending customer enquires, to back offices fine-tuning the turnaround time as competitive differentiator. Lateral entry of technology professionals and thrust on automating more activities can lead to the next level automation.
The government is also creating a compatible digital ecosystem through its ‘Digital India’ policy. Expanding the scope of direct benefit transfer (DBT) covering more number of government schemes to route subsidies is making bank account indispensable.
When the adrenaline is flowing full in increasing DBS, the recent news of scaling down of ATMs on account of costs of compliance is too frivolous. The Reserve Bank of India, in long-term interest, has proposed certain reinforcing new safety and security standards to insulate and make ATMs pilfer-proof. It calls for upgradation of hardware/software with an improved operating system, installing anti-skimming devices in all ATM kiosks in a phased manner latest by June 2019 and making use of lockable cassette swap in replenishing cash in ATMs.
Besides, cash-in-transit companies and cash replenishing agencies should maintain a minimum net worth of Rs 100 crore. Minimum cash management standards need vehicles with separate cash and passenger compartments fitted with CCTV cameras accompanied by two armed guards. It is estimated that the additional cost of a new set of security safeguards could be Rs 10,000 crore, involving both fixed and recurring costs. The Confederation of ATM Industry is apprehending that running ATM services may become un-remunerative unless cost sharing is envisaged at the industry level.
Since many banks have hired part of ATM infrastructure owned and operated by outsourcing agencies, the question of who will bear the cost of implementing the revised safety specifications is a moot point. While banks shall bear the cost of upgradation of ATMs owned by them, the question of who will bear such added costs for nearly 50% of ATMs operated by service providers is uncertain. Since such cost is not factored in at the time of agreeing for service levels, the vendors owning ATMs are reluctant to invest the additional funds. With the low interchange fee of Rs 15 a transaction, the additional cost of compliance cannot be met.
The conflict between banks and vendors on ATM operations will have to be resolved by negotiations. Downsizing digital infrastructure by pruning ATM network will be contrary to the policy to pursue technological innovations in delivering DBS. Stakeholders should sit together and work out solutions by sharing the compliance costs, including option of raising interchange fee exempting BSBD accounts. The most important aspect is to fall in line with regulatory compliance to ensure protection against cyber threats.
Providing a safe and secured operational ecosystem is sine qua non for meeting digital aspirations. The new RBI regulatory dispensation in ATM operations cannot be wished away on cost considerations. A road map for implementation needs to be worked out by banks and vendors under the aegis of Indian Banks Association and RBI to take digitisation to the next level.
(The author is Director, National Institute of Banking Studies and Corporate Management, Noida)