Digitisation puts India’s banking industry on a positive trajectory

By Kevin Luarca

India’s financial payments and banking industry is expected to invest more on new technologies and improve existing infrastructures and capabilities. According to a Moody’s report, however, only some of India’s largest banks and financial players are expected to benefit from it.

State Bank of India (SBI) subsidiary SBI Payments recently launched Yono Merchant App. The app will allow merchants to turn their near field communication (NFC)-enabled mobile phones into payment acceptance devices.

According to SBI the app was launched in line with the Reserve Bank of India’s plan to create a payments infrastructure development fund (PIDF) to encourage acquirers to deploy point of sale (PoS) infrastructure in lesser penetrated areas of the country.

Dinesh Kumar Khara, chairman of SBI said, “In the next two to three years, we are aiming to digitise millions of merchants by upgrading their mobile phones into a PoS device accepting all form factors, accessing value-added services such as loyalty, GST invoicing, inventory management, and connecting into an interface to avail other banking products at a click of a button”.

Kotak Mahindra Bank, on the other hand, recently launched Kotak Remit in its banking app which will allow users to instantly send up to $25,000 abroad without the need to present any physical documents.

The country’s growing middle income population, the government’s desire to onboard the unbanked, and the demand for cheaper and convenient technologies both on the side of buyers and retailers have prompted large banks to accelerate the development of technology-related products in the pipeline. India’s smartphone base is expected to rise to 820 million users within the next two years. The rapid rise of users due to the COVID-19 pandemic has made digital payments more attractive to consumers.

SBI and Kotak Mahindra Bank have reaped the benefits of the digitisation journey of India’s banking sector and the trend points to more financial institutions following the same route.

Moody’s, however, reports this will not be the same across all financial service providers in the country. Large banks like SBI, HDFC, ICICI Bank, Kotak Mahindra Bank, and Axis Bank have the necessary financial muscle and capabilities to develop and shift to digital products and services. Most public sector banks in the country do not possess the financial capacity to invest in technology as they struggle with weak asset quality and profitability. Smaller private sector banks also lack the necessary resources to invest in digitalisation while fintech providers are held back by regulations and strong presence of leading incumbent banks.

This means that while India’s banking industry is moving towards digitisation, only the largest players will be able to compete and take advantage of the benefits of India’s financial revolution.

Smaller banks and fintech providers are expected to collaborate with either incumbent banks or leading global financial players in other to bridge the gaps in terms of infrastructure and financial capabilities.

It is interesting to note that only a few financial players are capable of investing in technologies. Local giant banks have reinforced the capability to take on more risk but have also reduced competition in the country.



Keywords: Digital Payments, Mobile Banking, Technology, Financial Market
Country: India

 

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