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Digital Banking In India and its Components

Digital Banking involves the transformation of traditional banking services which are traditionally available in brick-and-mortar banking branches. These activities involve Account opening, lending, wealth management, customer service, etc.

With the pandemic making people unable to visit branches physically, there is an urgent need to offer them banking services through other channels. To make this happen, it is vital to build a Digital Strategy, which is aligned with the Business Strategy.

In order to help people familiarise themselves with the banking digital ecosystem and the technology players helping enable its growth, The Digital Fifth has created a representation of the Digital Banking ecosystem of the Country.

Core Banking Platforms: Before the arrival of CBS, banks used internal applications to support basic banking transactions like withdrawal and deposits. These applications were developed ground-up & any making enhancements were very expensive.

Centralized Online Real-time Exchange Banking Systems (CBS) were introduced as platforms built for reliability, scale, and customization. In India TCS, BaNCS, Infosys Finacle, and Oracle Flexcube are the most popular CBS used across the banks. These platforms were not aligned for open banking.

With the open banking revolution grappling the finance world, CBS providers initiated transforming their platform in form of APIs & microservices architecture which enables them to interact with third parties thus enabling information sharing and open banking. Next phase for CBS will be to fully embrace open architecture concept designed to support emerging use cases of Banking-As-A-Service & Embedded Finance.

LOS/LMS: The LOS and LMS help to handle the origination and management of a loan by following principles that are designed to ensure the smooth running of the lending journey.

These capabilities can be either built in-house or can be acquired with a third party.

The LOS and LMS systems, when combined with the data received from the data providers, ensure that the entire lending process remains seamless.

CRM: Customer Relationship Management platforms help the banks manage their customers. They provide services like solve customer queries, analyze their behaviors and provide

customized products that are best suited to the customer’s needs. These software solutions also help the banks decrease their customer acquisition costs through targeted campaigns and cross-selling product recommendations.

Payments: These are the companies that provide ATM Switches to the different Banks in India.

ATM SWITCH is software that is connected to the ATM Machines of banks and enables the flow of

information between the Core Banking Platform and ATM Machine.

The ATM Switch of these companies are connected to the National Financial Switch (NFS) and which is connected to the network of different Banks

BPM: Business Process Management tools are workflow automation platforms that enable banks to make their processes more streamlined, thereby improving cost savings.

They also provide reporting capabilities, and help assign the right activities to the right departments within banks.

API Gateway players: These Players provide an additional level of security to the Bank APIs. It is a layer that sits between the client and the service provider and ensures that all requests across the table are authenticated in a secured manner. They also ensure that the users accessing the Bank’s APIs do not compromise the security of the bank.

The role of API gateway players includes managing API integration,

Consumption, monitoring, and support monetization.

We feel that there is space for a flexible Indian player to create an impact in this space.

API Integrators: API stack players provide pre-integrated systems that simplify the partnership between banks and fintech. These entities have the experience of building API enabled solutions and enable implementation of Gateway solutions and integrate with 

Bank’s APIs.

We predict that as the ecosystem grows and evolves over the next few years, this segment will see a lot of action.

Neo Banks, Digital Banks, and Big Techs: With all these players providing the necessary infrastructure, Neo banks layer themselves on it and take on a customer-facing role, working in different customer segments like Retail, SMEs, etc. These banks are highly specialized in solving the specific pain points of their respective segments. The underlying operations of these Neo banks are usually taken care of by traditional banks using their APIs.

Due to the high growth rate and profitability of this space, several big tech-players have also begun entering this segment.

Data Providers: Another critical component of the ecosystem are the Data providers. These are the entities that collate external data through their sites and provide them to the lender. This data helps the lender discern the validity of the customer and also assess his/her creditworthiness.

This segment also consists of Alternate credit platforms that have the capability to use non-traditional data and Artificial intelligence to underwrite a customer.

These players leverage sources of alternate data to enable financial providers to provide credit to the underbanked, unbanked, and first-time customers.

With the arrival of PCR ( Public Credit Registry), a centralized repository containing credit data that can provide us with a 360-degree view of the borrower, this segment is bound to see a lot of action and development in the coming years.

India Stack: The India Stack is a set of APIs that allow governments, businesses, startups, and developers to utilize a unique digital Infrastructure. It aims to improve financial inclusion in the country through a Presence-less, Paperless, Cashless, and Consent-based service delivery.

The India stack framework was conceptualized by Ispirit. It provides underbanked citizens of the country with access to formal credit and fosters innovation. It has been developed on a model of Open APIs.

Networks: These companies provide railroads for payments and enable cross-border payments. They support the innovation in the Cards segment by coming up with innovations like Tap to Pay Cards, Tokenization process, etc.

Their next focus will be on IoT and blockchain-enabled payment solutions. Google Pay introduced NFC-based Tap & Pay solutions in collaboration with VISA, Axis Bank, and SBI Bank.

Tech Providers: These are technology platforms that help banks enhance their security and customer offerings. This includes Blockchain platforms that help validate transactions and prevent data loss. Blockchain technology has been invaluable in authenticating cross-border transactions and in payment scenarios where a third party is involved.

Robotic Process Automation is another such technology that is transforming the banking space. RPA enables banks to automate manual processes such as customer service requests, compliance, accounts payable, etc. It uses a combination of AI and robots to augment human operations

Third-Party Products: These are their party platforms that tie-up with banks to offer additional services to customers. These services include Insurance, wealth products, dining offers, travel packages, etc. They help banks improve their client experience and also provide these platforms with access to a wider customer base.

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