Introduction

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The modern banking in India started in the 18 century but it was completely unregulated. With
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the establishment of the Reserve Bank of India (RBI) on 1 April 1935 and its nationalization on 1
January 1949, it emerged as a regulator of the banking system in India. From its inception the
Indian Banking Sector has come a long way from manual to computerized style of working. With
tech revolutions all over the world, the banking sector in India saw coming in of Automated Teller
Machines (ATM’s), Debit & Credit cards, Access Control Server (ACS), NEFT/RTGS transfer
systems, internet banking, message alerts from banks etc. All these innovations developed the
competitive advantage of the banking sector and forced the players to innovate further.

Currently the Indian banking sector has 27 public sector banks, 21 private sector banks, 49 foreign
banks, 56 regional rural banks, 95,946 cooperative banks (www.ibef.org) as of date. Keeping in
mind the potential and the diverse business of banks in India they play a key role in the
development of the economy.

With Digital India Campaign by the government in the year 2015 the banking sector has seen a
shift in customer’s way of transacting. With customer satisfaction being top most priority, banking
sector has evolved and innovated a lot in order to provide unsurpassed services at economical
prices to its customers. The technological advancements worldwide have played an important
role in innovations in the Indian banking sector. The use of Artificial Intelligence, big data, internet
of things, block chains etc have made banking sector in India more competitive and customer
oriented.

Innovative banking products

Cheque truncation System

Truncation is the process to terminate the transfer of physical cheques among banks and in lieu of
that, electronic image of the cheque is transferred to the clearing house. Along with electronic
image the information like MICR band, date of presentation, name of presenting bank is also
given to the clearing house. Cheque Truncation System (CTS) speeds up the process of clearing,
reduces the risk of logistics and reconciliation related problems and lowers the cost of collection
of cheques. CTS system in India was introduced initially in three major cities namely New Delhi,
Chennai and Mumbai w.e.f. February 1, 2008, September 24, 2011 and April 27, 2013
respectively.

CTS is a customer friendly system as –

  Prevents loss of instrument in transit

  Allows faster clearance of cheques
   It is less prone to frauds

CTS prescribes certain image specifications, and to ensure that the images of the requisite
quality enter the CTS system a rigorous quality check is done at Clearing House Interface
and Capture Systems (of the presenting banks).

Smartwatch Banking
When we were replacing watches with smart phones, the smart watches kicked in. Just like
mobile applications of banks, smart watches can also be used to access banking products
and services. It can be used to make utility payments, generate mini statements, locate
nearby branches of the bank and many more things. In India smartwatch banking was
introduced in the year 2015 by HDFC bank. Following this other banks like ICICI Bank, SBI,
Yes Bank and Deutsche Bank also came up with this innovative product.

The paper by Infosys “Wearable devices in banking” highlights the challenges associated
with this. The major problem with the smartwatch banking is data theft and virus attacks. It
not only affects the customer using it but also can hamper the entire network of the Bank.
In spite of this, smartwatch banking has the potential to build upon.

Contactless payments using NFC

Near Field Communication (NFC) allows making contactless payments by just tapping the
card on the point of sale terminals.

As per Murali Nair – Head CRM, Visa India “Currently the penetration of contactless cards in
India has been pegged at 15 million with Visa carrying bulk space of 10 million cards
issued.”

Bank Smart Watch

HDFC Apple smart watches
ICICI iWear
SBI SBIWear
Using Samsung gear
Yes bank
3
Deutsche
Meine bank
Bank
In India Master Card and Visa are the two major players of contactless payments cards. Apart
from these cards certain mobile apps such as Apple Pay, Google Pay, Samsung Pay also use NFC
technology for payments.

As per Nair around 900,000 POI’s in India support NFC based card payments. Also smart phones
enabled with NFC payments can be hacked or unauthorized access into the personal space and
financial data can be taken for misuse.

Microfinance
It refers to the process where an under privileged or a low income group person who has lack of
access to financial system is given financial assistance for his financial independence. The people
with non stable employment, lack of credit history or lack of adequate collateral are mainly
targeted under this scheme.

Banks through micro finance not only provides loans, insurance and safety deposits they also
provide basic financial education, business skills and other skills required for financial
independence.

Private banks nowadays are collaborating with various Self Help Groups (SHG’s) to promote their
microfinance business especially in rural areas. For example –

  HDFC Bank’s Sustainable Livelihood Initiative

  Axis bank’s Axis Sahyog

Innovative processes Open banking and API’s

Open banking is a system that requires the banks to share the financial data and data
related to their customers with their consent, to the third parties using Application
Programming Interface (API). API is a software intermediary which allows to applications to
communicate with each other. The trusted third parties will be having access to this data
and thus use it for providing tailor made services to the customers. A recent survey by
Accenture shows that 70% of the payments executives will use open banking API’s to
generate offers and discounts based on consumer spending patterns.

Banking customers are benefitted through open banking as they can to compare the
services and returns offered by different banks, check their credit score online, facilitate e-
verification of documents, and get tailor made financial products at their door step.
For the banks, open banking helps in raising the revenue by providing better facilities to their
customers. By using API’s banks can track the consumption patterns and other relevant financial
information of individuals thus enables them to check credibility while providing credit. Also
banks can offer personalised financial products to their customer which is key to customer
satisfaction and retention.

In Indian banking sector open banking was introduced by Yes Bank by digitalising their B2B supply
chain. After this ICICI, Kotak Bank, RBL Bank, DCB Bank and many others came up with open
banking.

Cyber security norms in the banking sector

The use of latest technology has enforced the banks to survive and grow in this competitive
world, but has made them vulnerable to cyber crimes. In order to maintain the cyber security of
banks RBI introduced certain regulations vide Circular DBS.CO/CSITE/BC.11/33.01.001/2015-
16.It accentuates the urgent need to put up a robust cyber security/resilience framework at
banks and to ensure adequate cyber security preparedness among banks on a continuous basis.

Highlights of this circular-

  Need for board approved cyber security policy which is different from broader IT policy
  Arrangements for continuous surveillance
  Database security and protection of consumer information
  Cyber crisis management plan (CCMP)
  Cyber security awareness among Stakeholders/Top Management/Board

Apart from the regulations of RBI, banks in India follow certain policies and methodologies
to prevent cyber threats for the bank and for the customers as well. All banks maintains
IPIN (Internet Personal Identification Number) security, timeout of webpage for security of
sessions, use of virtual keyboard, instant message alerts, transaction monitoring, captcha
implementation, mobile number masking and many others to ensure cyber safety of
customers.

Partnership of banks with FinTech companies

FinTech is a combination of two words, Financial and Technology. In general fintech
companies help other companies, business owners and customers to better manage their

financial operations, processes and lives by utilising specialized software’s and algorithms.
Partnership of banks with fintechs will provide banks access to innovative products, latest
technology, use of AI and big data analysis. Banks can further use this access to decrease their
potential risk, increase customer retention, add on new customers and improve their
competitiveness in the market.

Banks have strong customer base and are considered trust worthy in the financial sector, fintechs
on the other hand have latest technologies which they can use to offer better financial services
and customized innovative products. So the partnership among the banks and fintechs will create
a win win situation for both as they can leverage on each other’s strength.

Some Fintech partners

Banks
Yes Bank NIYO, PaisaBazra.com
Ezetap, Mswipe

RBL Bank
Axis Bank Thought Factory (in house innovation lab)

HDFC Bank Accelerator Engagedment Program- for fintech

partnerships

FingPay, Arteia
ICICI Bank

Use of Augmented Reality

Infosys in its White Paper defines Augmented Reality as “a computer generated, programmed
environment where a user can feel, sense the details and even can participate in the actual tasks.”
It combines the person’s perception of the real world with the digital world. AR was initially
introduced in the entertainment and gaming sector, but its utility created its demand in other
sectors as well.
Owing to the rising numbers of millennials as customers, banks are bringing up innovative
processes for better customer satisfaction. Use of AR by Indian banks will enable their customers
to access nearby ATM’s, branches, make bill payments, track transactions and due payments,
locate nearby utility centres, search verified properties and many more utilities which are still to
be discovered by the banks in future. In India AR in banking sector is at a nascent stage but certain
banks have already put it to use.
Table 3 – Banks and their AR operations
Axis “Near Me” application, used to locate nearby branches & ATM’s, generate exciting offers
bank to clients when they visit shopping centres and locate pre-approved property.
Visa Enables the use of AR to locate food outlets, access their

Electronic copy available at: https://ssrn.com/abstract=3438918

menus, pay for the order instantly using AR.

“Holographic Workstation” allows real time analysis of financial data using holograms by
Citibank
traders for a better decision making.

Focus on Customer Relationship Management

Customer Relationship Management (CRM) becomes an integral part of business especially when
the level of competition is increasing. In the Indian banking sector financial innovations and
increasing powers of customers becomes very important to retain customers for long term and
keep them satisfied. Banks in India are using CRM to provide top notch services, self service
options, indentify next best product and execute tailor made marketing.

Table 4 – Banks and their CRM

YCCRM(Yes bank collaborative CRM) includes discussion boards, templates,

Yes bank
sharing information with employees to develop new products.
CRM Business Transformation Map- to focus on five areas i.e. business focus,
ICICI bank
organisational structure, technology, business matrix and marketing.
Uses CRM software for Prospect Management, Lead Management, Activity
Punjab National
Management, Product Management, Complaint Management and business
bank
intelligence reporting.

Bank of
Maharashtra Uses in house software to send updates and variety of reports about customers
to different branches.

Indian banks are also using the technological innovations for CRM, use of digital Chat Box for
customer communication, robotics software, big data analysis and cloud for tracking customer
behaviour and accordingly taking timely steps to retain them.

Use of AI, Block chains, Big data analysis and Cognitive computing
Artificial intelligence is a part of computer science which deals with creating machines,
applications and other innovative products that has the potential to work as a human, with better
efficiency. In Indian banking sector AI is a rapidly growing owing to its benefits for the banks and
for the customers as well. AI in Indian banks was introduced with coming in of automated chat
boxes for the customers.

Accenture Banking Technology Vision 2018 report states that 83% of bankers believe that AI will
work along with humans in the banking sector.
Table 5- Use of robotics in Indian banking sector

ICICI Banks Software Robotics

Canara
Mitra and Candi Robots
Bank

Blockchain, also known as distributed ledger technology will lead to a sea change in the finance
industry. It provides high level of safety, transparency and security.
Big data analysis is a concept which deals with collection, categorization and analysis of huge data
which is beyond the capacity of traditional data collection and analysis techniques. This concept is
used in banking sector to collect data and analyse data about the customers from sources like log
data, transactions, help lines, emails, social media, external feeds and other sources. This data is
rigorously analysed in order to get maximum benefits out of it.

Cognitive computing is another innovation in banking sector which is used to analyse text based
data, non-numeric data and other word based data in order to provide a better big data analysis
experience to the banks. AI, Big data analysis, Block chains and cognitive computing word
together to provide the following benefits to the banking sector-

AI comes with the potential to transform the banking sector but it also comes with challenges in
its implementation. The lack of workforce with required data science skills and lack of good
quality and credible data which takes the entire concept of AI for a toss. Also the use of AI will
make the traditional employees in the banking sector as redundant and thus lead to a rise in
unemployment in the sector.

Use of Cloud storage

Cloud computing is a process which relies on shared computing resource rather than having
personal servers and devices to manage applications. It provides online services like storage of
data, computing and analysis of data.
In banking sector cloud computing is at a nascent stage but has the potential to make Indian
banking sector more competitive owing to the below tabled benefits of it-

Conclusion
The tech revolutions taking place throughout the world and increasing competition among the
players led to the transformation of the Indian banking sector. Many private sector as well as
public sector banks have already adopted the technological innovations in their business practise.
The Indian banking sector has evolved but the customers of the banking services have still not
completely adopted the new way of banking. With passage of time the awareness among the
banking customers will improve which will lead to better adoption of new style of banking. The
future of the Indian banking sector seems bright with more and more people getting benefits of
the innovations in sector.