Role of Digital Banking in Economic Growth

Introduction

In the modern world digital banking is plays important role in economic growth and development. Digital banking gives various services to the individual, business and government to conduct the financial transactions. So the main role this digital banking is financial inclusion, increase saving and investments, and economic monitoring etc. 

In additionally, digital banking also impact in economic development by reducing transaction cost, increasing transparency, and supporting small and medium sized business (SMEs) through easy access to credit. The Government and other financial institutions are investing in digital banking infrastructure to improve economic stability, reduce corruption and financial stability towards the nation.

History or Evolution of Digital Banking

In the mid-year of 1960’s the ATM machined was introduced for first time to withdraw cash and funds transfer. Then in the year of 1970’s Electronic Fund Transfer (EFT) and credit card system was introduced the people use this cards for online payments.

In the year of 1980’sthe first computerized banking system was involved to create customer account efficiently. This is the early stage of digital banking. Then in the year of 1990s-2000 the online banking facility was available to access the customer accounts and transfer bills and payments. Then in the year of 2000- 2010 the expansion of digital banking through the mobile networks i.e. mobile banking available in all over the world, so that the transfer of payment get very easy.

The year of 2010 till present Artificial Intelligence are developed, and there are many fin-tech company are involved for digital payment system. In this decade the new financial services such as peer to peer lending, advisor and micro investment. In the future decades the block chain technology will be more developed so that it may enhancing the security, transparency, and security in banking system.

Traditional Banking VS Digital Banking

Points to remember	Traditional Banking	Digital Banking
Meaning	In this banking customer visit the physical branches, manual process and paper work transaction.	In this banking customer use electronic platform for financial transactions.
Services	Banks has physical branches, ATM and service center.	In this banking the banks has an owned mobile banking, internet banking and digital wallets to transfer a funds.
Convenience	It has a time consuming	It is reduce our time and cost
Accessibility	Customer should visit the branch according to their time and hour	It has a 24 *7 access in any where
Customer Support	It has a face to face interaction with the bank representative	It has no face to face interaction without bank representative
Security and Fraud	The traditional system are more secure because of physical appearance	In this system are also secure but there are many chances of cyber-attacks and fraud

Key Milestone in Digital Banking

1) Introduced the ATM:

Automatic Teller Machine is an electronic banking device. It allows the user to conduct the banking transaction without any kind human need. The totally transaction is machine transaction. This machine used for various purposes i.e. Withdraw cash; transfer a payment, bill payment, etc.

2) Internet Banking:

It is called as an E-Banking or Online Banking that customer performs the various financial activities. It is the best and convenient for public to make transaction as easy and effective. Why it get effective? Because there are certain features like an account management, fund transfer, bill payment, loan and credit services, investment service and customer support all these are effective for transactions. It has a 24*7 accessibility and convenience to use and as well as cost effectiveness also.

3) Mobile Banking:

Mobile Banking also known as a M-banking it’s allow the user to various financial services such as fund transfer, bill payment activates and credit services also get provide. It is 24*7 available the services and convenient to use. How it works?

•  User first goes to the bank and then registers for mobile banking services

• Then the bank register it within the two to three weeks the bank create the username and password for that.

• Then you can transaction from it.

4) UPI and Digital Wallet:

UPI means Unified Payment Interface it is developed by NPCI (National Payment Corporation of India) under the guidelines of RBI (Reserve Bank of India).In UPI we can transfer the payment from one account to directly to the another bank account. You can transfer the amount in 24*7 conveniently.

So that it operate single platform to multiple banking system. And digital wallet also called as an e-wallet, so it is also similar like a UPI. It is mobile based financial application that stores the money into a digital wallet and you need not need any kind of bank accounts. It’s a convenient for all the users also. So in this there are three types of digital wallets:-

•  Closed Wallet

•  Semi –Closed Wallet

•  Open Wallet

There are certain popular digital wallet and UPI are there

• Google Pay

• Phone Pay

• Paytm

• Mobikiwik

How Digital Banking Drives to the Economic Growth?

1) Enhancing Financial inclusion:

Financial inclusion gives the all the financial services to individual, businesses, and government. They play important role to boost our economy. For an individual the banks grant the loan and credit facility and for the business they give loan for working capital to manage the business and finances. There are certain importance for the financial inclusion is that:

•  Economic Growth

•  Financial Stability

•  Reduce the poverty

•  Job Security and Women Empowerment

There are certain benefits are also there:

•  Empower a small business

•  Encourage saving and investment

•  Reduce the dependency on cash

2) Reduction in Transaction cost

Transaction cost is minimized in digital banking services. In traditional banking there are lot of paper work but in this digital banking there is no paper work and form or any payment goes in to the bank account directly.

Examples:

•  Online payment transfer is cheaper for individual rather than go to cash counter

•  Digital wallet and UPI reduce the dependency on cash in wallet

3) Boosting Economic Productivity

In the financial transaction, digital banking are more productive for economic growth and development so that it reduce the cost and complete transaction faster and improve the cash flow management . There are certain importance or key features are there

Increase the Capital Efficiency

• Enhance Business Growth
• Encourage Investment
• Improve Employment

4) Facilitates in Government Policy and Economic Monitoring

The main aim of the government to monitor an economy and control a digital banking transaction and improve the welfare programs and financial regulations. Government should allow economic activities helping policy maker makes informed decision.

5) Encouraging Entrepreneurship startup :

Digital Banking supports the entrepreneur by granting loans and credit facility, investment, and other payment solutions. Government creates the welfare program for startups for economic development. The main aim of the government to formulate the plans and policy for the startups, banking system and ensure the economic stability.

Role of Digital banking in various sectors

1) Role in Banking and Finance sector:

In this sector banks gives the 24* 7 banking services. They also secure your account against fraud and give the messages also. Bank and other financial institutions provide the loan and credit facility example: Kreditbee, Kissht…etc.

2) Role in Retail and E-Commerce:

This sector gives the facility for digital payment like UPI, mobile wallet, online banking also. For attraction of new consumer they give a certain scheme Buy now and Pay Later for increase the purchasing power of a consumer.

3) Role in Healthcare sector:

The role in healthcare is make the payment digitally like hospital bill, insurance payment etc. Health insurance and medical loan are get easily. The user also gets the EMI option for treatment and purchasing the insurance and claiming the settlement amount are very quickly.

4) Role in Education Sector:

In the education sector, it is very easy to pay the tuition fees and school fees. There is some institution that they grant the education loan and scholarships to the students. For example: Tata Trust and Infosys foundation. You can also buy certain subscription for learning online courses and ensures the timely salary payment and financial management.

5) Role in Agriculture Sector:

In this sector the government grants the loans and credit facility to the farmer and gives them subsidy. In the rural areas UPI and mobile banking facility are increase in day by day. So those payment receivables are very easy through the UPI options.

6) Corporate and SME Sector:

In corporate sector banks gives the loans and credit facility to the businesses and startups. So that they can manage their finances to their businesses. In the digital banking system the banks support the global trade and business expansion

7) Government and Public Sector

Government creates the online tax portal system for the individual and the business, so that it improves the efficiency and transparency in financial administration. The government should create the certain schemes such as:

• Direct Benefit Transfer
• Tax Collection and Compliance
• Smart Governance and E- Governance
• Disaster Relief and social security payment

8) Tourism and Hospitality

This is the sector that Digital banking also takes the important role such Online Booking and payment example: hotel booking, flight booking. It also supports the currency exchange and global transaction. For this the customer also get emergency loan for travelling.

These are the eight important roles in digital banking sector to improve the economic growth and development.

Challenges of Digital Banking

1) Risk in Cyber-attacks:

This is the most challenging part in Digital Banking. Increasing the online transaction the cyber-attacks breach the data, as a result financial loss, data loss and reputation image go down. So there are various major risks in cyber-attacks:-

•  Data breaches and identity theft
•  Financial Fraud and Unauthorized transaction
•  Ransom - ware and Malware attack
•  Distributed Denial of Service (DDOS) Attacks
•  Insider threat and system vulnerability

So these are the major risk are involved in t cyber-attacks. So to prevent this kind of risk there are certain prevention of risk are also there

•  Strong Cyber-Security Infrastructure
•  Advance Fraud Detection System
•  Customer Aware and Cyber Hygiene
•  Regulatory Compliance and Data Protection law.

These are to prevent your digital bank and financial security of your bank account.

2) Digital Divide:

In Digital Divide, there are some people they cannot access the digital devices such as smartphone, table, PC, Laptop …etc. so that they not are aware about this kind of cyber-attacks. So bringing the digital divide ensuring equal access to financial services so that they can prevent from the cyber attacks

3) Regulatory and Compliance Issues

Digital Banking is a financial service that they come under the law of government. So that’s banks and the public should follow the regulatory rules and challenges in digital banking are as:-

•  Data Privacy and Protection Law
•  Anti-Money Laundering (AML) and Know Your Customer (KYC) Compliance
•  Fraud Prevention and Risk Management
•  Cross Border Payment and International Compliances
•  Open Banking and API Compliance
•  Consumer Protection and Digital Banking Law

4) Technological Disruption and Competition:

The Fin-tech companies and other technology companies i.e. tech giant companies are competing with the banks. So Banks should create the innovative products and services and adopt the new technologies.

Future Trends in Digital Banking.

1) Artificial Intelligence and Automation:

Artificial Intelligence and Automation are transforming digital banking by enhancing efficiency, security, and customer experience. It is collection of different technologies that allows the machine that act as a human intelligence .These kind of technologies will be available in banks to reduce frauds, improve decision making through data driven insights. There are certain role in AI for digital banking is as follows:-

•  AI power customer service
•  Fraud Detection and Cyber security
•  Loans and Credit Risk Assessment
•  Process Automation in Banking
•  Predictive and market insights

2) Block chain and Decentralized Finance

In the traditional banking system the block chain is a revolutionized system that offering a secure, transparent and decentralized services to the banks. It will maintain the security and transparency to maintain financial data protect from reducing frauds and as well as transaction cost.

3) Biometric Authentication and Security Enhancement

Banks should protect the customer data using biometric authentication, facial expression or any voice to protect the data from customer. So that it may reduce the cyber-attacks.

4) Integration and Smart Devices and IOT:

Using the IOT (Internet of Things) the banks will be connect with wearable devices such as smart watches, and home assistance i.e. Alexa and Google Assistance etc.

Conclusion:

In this article we conclude us that role of digital banking in an economic growth is very transformative and innovative. It is best way to financial inclusion, reducing costs and improves efficiency by using advanced technology such as AI, block chain and automations.

So Digital Banking empower the business, government, individual and accelerating the economic progress. Digital banking is an innovative solution and bridges the gap between traditional and decentralized finance.