Digital Banking: Definition and Evolution

Digital banking is a term that conveys different meaning to different stakeholders. For customers, digital banking means enjoying the benefits of innovation and convenience. For financial institutions including banks, digital banking is better customer satisfaction, more business and operational efficiency.  For regulators, it ensures easy flow of data, better control and monitoring. In short, digital banking means customer engagement, better profitability and control. 

Digital Banking: Definition

Digital banking can be defined as extending the transactional facility to customers by banks through various secured digital channels by taking care of data security, related risk mitigation and regulatory aspects by banks themselves.   This is achieved by integrating online (internet) and mobile banking services by adoption of latest digital technologies like analytics, social media, innovative payment solutions and mobile technology with the aim of exceeding customer expectation, convenience and experience.

Till two decades back, banks had been following physical branch network (brick and mortar) method for increasing customer base and branch network. This method involves more expenses by way of rent, maintenance expenses electricity charges etc. Even after much progress in digital banking, cost to income ratio of many of the banks are in the range of 45-55%. 

Technology boom and Evolution of Digital Banking 

Technology boom has been the major driving force behind expansion of banking business in India and across the world during the last 20 years. Now, internet and mobile access are available even in remote corners of the world linking people and organization across the world like never before.  The technological revolution over the years transformed the expectation level of customers and the way of functioning of organizations.  First impact was felt in improving operational ease, but it was just the beginning.

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Spread of mobile connectivity  and related infrastructure opened up banking sector to fintech technology companies. Fintech companies succeeded in launching variety of customer convenient products that attracted many customers. The challenge from these companies compelled banks to re-engineer their process and products to retain customers leading to first face of digital banking.  Automated Teller Machines (ATMs) that dispensed cash was just the beginning of  the revolution.  

The next stage of digital banking was to meet increased customer expectation levels. This compelled banks to come out with better innovations, products and services to ensure customer satisfaction and delight. Digital Banking redefined the style of banking.   Today, customers manage their banking transactions at the comfort of own drawing room without the involvement of banking staff.  By the end of last century, banks began offering 24 x7 service to customers by harnessing technology, but now customer carry 24 x 7 banking facility with them, in their smart phones. 

Digitization, Digitalization and Digital Banking

Digitization is the process of converting data into digital format. Conversion of an analog audio signal into its digital form is an example.  In this process, strings of binary numbers, 1and 0 are used to represent the converted data.

Digitalization goes beyond digitization. Digitalization offers complete interactive and multimedia experience.  It offers better out come through effective customer engagement. 

In banking, digitization is the process of keeping transaction details in digital form. But digital banking is the business process of keeping records in digital form, interpreting the data to useful information through application of analytical methods, offering better customer engagement and generating more business through customer specific interaction and thereby improving operating efficiency and better income for the bank. Digital Banking: Different Channels, Objectives and Advantages

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