Digital Banking Ecosystem

The BFSI industry has undergone rapid transformation, marked by significant investments in digital infrastructure. Large banks have already initiated the scaling of their digital operations, with a heightened focus on enhancing technological capabilities. The insights gained from their successes will serve as valuable lessons for mid-sized and smaller banks.

The transformation in core banking reflects a pivotal shift towards digitalization, with many institutions exploring Dual Core technology. This trend underscores the industry’s aspiration for complete digitalization within the next decade. Moreover, Banks are also exploring to transform traditionally complex and unexplored domains such as Trade Finance and Treasury.

The emergence of fintech firms and marketplace players delving into embedded finance verticals is broadening the ecosystem through collaborative ventures with banks and NBFCs. Looking ahead, the regulatory landscape is likely to encompass more fintech entities, fostering a probable increase in NBFC-fintech partnerships compared to bank-fintech collaborations.

While incumbent players currently dominate the Core Banking System segment, and new companies getting banking licenses as well the cooperative banking segment is been technologically ignored for a long time due to the legacy and bulky systems, thus technology limitation in this segment creates a huge opportunity for Banking tech providers to capture in the future specifically in the areas of core and digital platforms.

Factors Driving Digital Banking:

Digital Banking has seamlessly integrated into core strategic initiatives within the Indian banking sphere, erasing traditional boundaries between business and digital strategy.
Banks, fueled by the burgeoning fintech sector and collaboration prospects, are significantly bolstering their API stacks and infrastructure.
Strategic investments in technology upgrades aimed at digital customer acquisition initiatives have propelled the demand for CRM platforms to efficiently manage leads from diverse channels.
The advent of Neobanking, Embedded Finance, and BaaS models has spurred the adoption of Open Banking, compelling banks to modernize their back-end core infrastructure, particularly the Core Banking System, to be API-ready.
Digital Banks are increasingly adaptable and customer-centric, continually expanding their offerings to compete with Neobanks across product and service spectrums.

Regulatory & Government Support:

RBI guidelines allowing banks to use Video-Based Customer Identification process (V-CIP) have completely changed the dynamics of customer acquisitions, with most banks expediting customer onboarding digitally, especially in retail segments.
Sahamati has defined standards across Data, Analytics and User Experience, leading to the emergence of TSPs focused on implementing them across AAs, FIPs and FIUs to fast-track the growth of the AA ecosystem.
RBI’s support on mergers between Fintech startups & banks (such as Slice with North East Small Finance Bank) will have a profound impact on the way technology is used within banks.

In conclusion, the digital banking landscape in India has experienced a substantial shift, Going forward, advanced technologies will shape digital banking solutions. Real-time payments, AI-driven predictive services, interactive UI/UX are some areas banks are exploring. Strategic bank-fintech partnerships will lead to co-creation of innovative products, Data analytics capabilities will personalize offerings. Focus on security and privacy will increase trust in digital banking.

To delve more deeply into Banking segment as well as other segments such as Payments, Lending, Wealth, Insurance and Regtech, you can download The Digital Fifth report in collaboration with Chiratae Ventures on – “Unlocking Indian Enterprise Fintech Market” which revolves around examining success factors and identifying opportunities tailored for new-age players in the industry.