Banks are financial institutions that offer multiple services like deposits, withdrawals, saving instruments, mortgages, and various types of loans. Until recently, to avail of these services, one had to visit the physical branch. From standing in long queues to now using bank applications at home, banking has evolved into electronic banking.
E-banking means users with a device and a browser can connect with their banks through websites or applications to perform any virtual banking functions.
Electronic banking offers its financial services to its customers through various forms such as Automated Teller Machines (ATM), telephone banking, internet banking, and mobile banking.
The traditional way of banking has evolved due to the advent of the internet, technological evolutions, and competitive forces. Let us look at how e-banking is slowly taking shape in India.
Evolution of e-banking: A historical view
Britishers left India with a host of large and small privately-held banks. In the late 1960s, the banks were nationalized, leading to the emergence of public sector banks. These banks worked entirely on traditional branch banking up until the economic reforms of the 1990s.
Globalization paved the way for private and foreign banks to enter the Indian financial market. These private banks were equipped with new technologies forcing Indian financial institutions to adopt them quickly to counter the competitive advantage.
This started with implementing computerized applications and communication networks in 1993, over the past manual system, which was incompatible due to increasing overload.
In 1994, RBI suggested using Electronic fund transfer (EFT), introducing electronic clearing services, and extending Magnetic Ink Character Recognition (MICR) beyond metropolitan cities and branches.
In 1996, ICICI was the first to introduce online banking services in its branches. This initiative was followed by HDFC Bank, IndusInd Bank, and Citibank, which started providing online banking facilities in 1999.
India and the government of India have taken various initiatives for the expansion and smooth functioning of Electronic banking in India.
- From 1980 to the 1990s – The arrival of debit cards and credit card
- From 1984 to 1988 – Banks started using computers, and MICR cheques were introduced.
- In 1987 – HSBC was the first bank to introduce the ATM concept in India
- In 1990 – ECS payment was introduced in India by the RBI
- In 1991 – India joined Society for Worldwide Interbank Financial Telecommunication.
- In 1997 – A shared payment network system was set up
- In 1999 – A pilot project for Smart cards was conducted jointly by the Reserve bank of India, IIT (Mumbai), and IDRBT, Hyderabad
- In 2000 – the Information Technology act was passed,
- In 2002 – mobile banking was started in India by way of SMS banking
- In 2003 – The introduction of Special Electronic fund transfer
- In 2004 – The introduction of Real-time gross settlement
- In 2005 – overall, 11 Percent of branches of Public sector banks had been brought under Core banking solutions and the introduction of national electronic funds transfer.
- In 2007 – the payment and settlement system act 2007 was passed
- In 2008 – The introduction of a Cheque truncation system and operative guidelines on mobile banking transactions were issued.
- In 2009 – Free cash withdrawal from ATMs.
- In 2010 – The introduction of an Immediate payment service
- In 2016- the Bharat bill payment system & Unified Payments Interface were started in banks across the country that started to upload their interface in August 2016.
- In 2016 – Bharat Interface for Money (BHIM), a mobile app developed by the National Payments Corporation of India (NPCI), based on the Unified Payment Interface (UPI).
Source: here.
Services offered in E-banking.
Today in this busy life, when we run against time, e-banking services have saved us from multiple visits to banks. The banks now deliver their banking services primarily through the internet using electronic delivery channels like debit cards, credit cards, smart cards, ATMs, internet banking, mobile banking/telephone banking, electronic fund transfer, etc.
E-banking services currently active in India include:
1. Automated Teller Machines (ATM)
These are the machines that operate with plastic cards with special features. The cards and machines have replaced traditional cheques or personal attendance at the banks. Thus customers get 24×7 access to withdraw without worrying about bank timings and lunch breaks.
2. Debit Cards/ Credit Cards
These cards empower its holder to make transactions anytime and anywhere. Credit cards are postpaid cards, whereas debit cards are prepaid cards where you must keep some amount in the linked bank account for withdrawal.
3. Smart Cards
These cards have integrated chips that act as security tokens and can be used to store data securely. They are used in multiple payment cards. Smart cards also have short-range wireless connectivity and can be used for contactless payment systems.
4. Fund Transfer
Transferring funds electronically from one account to another has become possible with the help of Immediate Payment Service (IMPS), National Electronic Funds Transfer (NEFT), and Real-Time Gross Settlement (RTGS).
5. Bill Payment Services
E-banking facilitates bill payments for electricity, mobile bills, insurance premiums, and credit card payments. The banks have tie-ups with various utility companies, service providers, and insurance companies across the country.
6. Investing
You can easily open FDs, get interlinked Demat accounts to easily transfer the funds from your account into the Demat account, and buy the shares online. You can invest in mutual funds and other instruments on your devices.
7. Shopping
Internet banking has made all kinds of purchases possible with just a few taps on our devices. With the wide range of products available in the online marketplace, we can easily browse and make payments using our mobiles.
E-banking has made access to banking services possible 24/7 from any place with internet access. It also provides security and privacy to customers by using state-of-the-art encryption and security technologies.
Challenges in the growth of Digital Banking in India?
E-banking success depends on the rate of internet penetration in our country. Poor infrastructure and low possession of computers and the internet is a serious threat to growth.
Rural areas comprise 61.35% of the total population. They play a crucial role in building up the country’s economy. However, lack of resources and less internet connectivity hinder availing convenient banking services.
Now, banks and government focus has shifted from well-structured cities to rural banking platforms. Different government committees have made it compulsory for all Indian banks to open at least one-fourth of their new branches in rural areas.
However, this comes with a huge operational cost in opening up new branches and running them profitably. One solution to this problem can be Neo banks. These banks do not have a physical location and are present entirely online.
Neo banks provide digital, mobile-first financial solutions for payments, money transfers, lending, and more. They allow customers to make deposits and withdraw money. They offer debit cards, investment facilities, and much more like the usual banks.
A strong banking system in the rural areas will help uplift the Indian economy from its grass-root level.
How is Genie Money contributing to the growth of E-banking in India?
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We hold the vision to make banking and investment channels reach the unprivileged and make them taste the usefulness and convenience of E-banking.
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