The banking landscape in India has undergone a major transformation, driven by significant investments in digital infrastructure and innovations by both incumbents banks and new fintech entrants, a new analysis by the Digital Fifth, a fintech consulting and advisory firm in India, says.
This dynamic ecosystem is supported by regulatory advancements and collaborative partnerships, which are expected to continue fostering innovation and growth in the sector.
Banks push for digitalization
According to the report, large banks are at the forefront of the sector’s digital transformation. These incumbents are expanding their digital operations and enhancing their technological capabilities. Core banking is at the center of this shift, with many institutions exploring “dual core technology”, a trend which underscores the industry’s aspiration for complete digitalization within the next decade, according to the Digital Fifth.
In digital banking, dual core technology refers to the use of two distinct, yet interrelated systems to manage and deliver banking services. These cores typically serve different purposes within the architecture of a digital banking platform, allowing for greater flexibility, scalability, and agility.
Moreover, banks are also beginning to digitize traditionally complex areas. The Indian Banks’ Digital Infrastructure Company (IBDIC), for example, is a consortium launched by eighteen banks to digitize letters of credit and other manual processes using blockchain technology. This move aims to enhance efficiency, reduce costs, and improve the security of trade finance transactions.
Meanwhile, major banks like HDFC Bank and Yes Bank are modernizing and digitizing their treasury operations to enhance efficiency, accuracy and security. HDFC Bank, for example, adopted in 2022 Bloomberg’s MARS Valuations solution, which offers a comprehensive valuation system for a wide range of financial instruments, from cash products to complex derivatives. That same year, Yes Bank teamed up with IBSFINtech, a leading treasury technology provider, to digitize corporate finance and offer automated workflows and bank connectivity for corporate treasuries.
India banks are also investing in technology to enhance digital customer acquisition, leading to a rising demand for customer relationship management (CRM) platforms to handle leads from various channels. This has been accompanied by a growing focus on strengthening API (application programming interface) infrastructure to enable collaboration with fintech startups.
For example, ICICI Bank launched in 2020 an API banking portal with 250 APIs, allowing fintech companies to integrate various banking services into their platforms. Axis Bank has also introduced a wide array of open API solutions, including over 200 retail and 51 corporate APIs.
Fintech startups emerge as strong contenders
In addition to banks ramping up their digital capabilities, fintech companies are growing at a fast pace and becoming strong contenders in the digital banking space, pushing traditional banks to innovate further.
A 2023 study by YouGov revealed that 52% of urban Indians familiar with neobanks are using them, with new fintech entrants like RazorpayX, Fi Money, Jupiter and Niyo leading the market by boasting higher awareness and usage among Indian consumers.
Launched in 2018, RazorpayX is a digital banking platform designed to streamline and automate banking operations for businesses. It offers a suite of financial management tools that integrate with a company’s existing systems to simplify tasks such as payroll, vendor payments, and tax payments, and claims over 45,000 business customers.
Fi Money, founded in 2019, targets tech-savvy individuals seeking smarter ways to manage their finances. It provides a range of financial services through a mobile app, including savings accounts, expense tracking, goal-based saving, and investment options in partnership with licensed banks, and claims more than three million users.
Jupiter is a neobanking startup founded in 2019 that offers financial services including debit cards, mutual funds, personalized savings options, expense management, and real-time payments. The startup had about two million customers in 2022.
Finally, Niyo provides digital banking solutions, focusing on simplifying personal finance and enhancing the banking experience for its users. Founded in 2015, the company offers products like multi-currency travel cards, digital savings accounts, and salary accounts in partnership with traditional banks, and serves more than six million customers.
Regulatory support boosts digital banking
This dynamic ecosystem is supported by regulatory advancements. The Reserve Bank of India’s (RBI) guidelines, which allow banks to use Video-Based Customer Identification Processes (V-CIP) for know-your-customer (KYC) requirements, have revolutionized digital customer acquisition and onboarding, especially in the retail segment.
Moreover, the RBI’s support for fintech-bank mergers, such as Slice’s merger with North East Small Finance Bank, is expected to positively impact how technology is integrated into banking operations.
Finally, standards set by Sahamati on data, analytics, and user experience are fast-tracking the growth of the account aggregator ecosystem. This helps enhance the security, efficiency, and trustworthiness of digital banking services.
Initiatives by the government, such as the India Stack, have also supported the development of digital banking in the country. India Stack is a set of APIs that enables governments, businesses, startups, and developers to build apps and services. It comprises digital identity, real-time payments, electronic signatures, and more.
India Stack is a fundamental infrastructure that has enabled a range of digital services, including financial inclusion, seamless transactions, and efficient banking processes, driving the growth of digital banking.
Featured image credit: edited from freepik
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