Image source:

This article is written by Harshit Bhimrajka, from the Rajiv Gandhi National University of Law, Patiala. This article deals with the hits and misses of the digitalization in the banking sector, the need, and the progress of digitalization.


Digitalization means the transformation of data and information into a digital structure with the reception of innovation. Digital is the new buzz or the latest expression in all the sectors. The banking sector, like all other sectors, is progressing towards technological advancements. All over the world, banks are taking a huge step towards digitalization in order to cope up with the competition and deliver the maximum to its customers. Digitalization has transformed the manual process into digital service by reducing human error and thus, saving time and building customer loyalty. Across all verticals, consumer needs have been met through innovative ways, disrupting the existing enterprise value chains. Now round the clock, consumers have access to the services provided by a bank just by the use of online banking. The main steps of the digitalization of the banking sector are mainly focused on adding to the existing offer the use of new services enabled with technology to increase accessibility and value for customers. Digitalization has benefited consumers in certain ways but, it also has some challenges which have to be faced by the consumers, as everything has some of its own advantages and disadvantages. In this article, we will discuss the hits and misses of the digitalization in the banking sector, the need, and the progress of digitalization.

Digitalization in Banking Sector

Late in the 1980s, India’s banking sector felt a need to improve customer services and computerization of recording and accounting of data. A committee was set up in 1988 by the Reserve Bank of India and it was headed by Dr C. Rangarajan to study Computerization in Bank. After the introduction of the Liberalization, Privatization, and Globalization (LPG) policy, the process of digitalization picked up the pace with the change in the Indian Economy. 

This wave took pace when private and foreign banks entered the market with the aim to digitalize the economy and improve the services provided by the public sector banks to the customers. Digitalization offers open doors for new banks to put the customer at the centre of the development process which also helps them to survive in the market. The Commercial Banks in India have moved towards innovation through the Mechanization and Automation of the Bank with the prologue to cheque processing dependent on Magnetic Ink Character Recognition (MICR), the electronic transfer of assets, the interconnection between bank branches and the implementation of ATMs has brought about the comfort of any time banking. It became important, for the adoption of the digitalization process in the Indian banking sector, to cope up with the modern world, as technological advancement is boosting in the world with high speed and also to provide enhanced services, reduce human error, build customer loyalty, and to save time. The objective of the digitalization in the banking sector is to meet the expectations of empowered and tech-savvy customers. 

Many strong steps and initiatives had been adopted by the RBI and National Payment Corporation of India in strengthening the Payment and Settlement Systems in banks like the launching of United Payments Interface (UPI) and Bharat Interface for Money. Because of these initiatives and platforms, customers now need not store or handle cash anymore and can make transactions at any place at any time. It has also resulted in reducing the costs drastically. As per the latest information, the cost of a bank transaction on Branch Banking is estimated to be 70-75 INR, 15-16 INR on ATM, less than and equal to 2 INR on online banking and less than and equal to 1 INR on mobile banking.          

Progress in the Banking Sector

The digitalization in the banking sector can be seen in India since the establishment of ATMs. After that, development like Telebanking, Electronic Compensation Service, Electronic Funds Transfer system, MICR, RTGS (Real-Time Gross Settlement), Point of sale terminal, etc can be seen in the banking sector. India has been developing itself by becoming a cashless and digitized economy. Various incentives and measures have been taken by the government as well as the Central bank in digitizing the economy and a phenomenal development can be seen in the digital transaction by the people. All out digital transactions in volume terms recorded a development pace of 58.8 per cent during 2018-19, over the development of 50.4 per cent during 2017-18, the Reserve Bank of India said in a report

The RBI says digital transactions in esteem terms developed by 19.5 per cent during 2018-19, compared to the development of 22.2 per cent during 2017-18. Despite, the fact that the greater part of digital transactions in esteem terms (82.8 per cent) are accounted for by RTGS transactions, the retail component of digital transactions (barring RTGS customers and interbank transactions) saw a volume development of 59.3 per cent during 2018-19, as against 50.8 per cent development in the previous year. RBI in its report titled ‘Payment and Settlement: The Plumbing in the Architecture of India’s Financial System’ said that “In esteem terms, retail transactions developed by 38.2 per cent, over 45.8 per cent development a year ago. They accounted for 99.4 % and 17.2 % of all-out digital transactions volume and worth, separately.” As per a report by Swiss financial services holding company, Credit Suisse- India’s digital payment industry, which is currently worth around USD 200 Billion, is expected to grow five-fold to reach USD 1 Trillion by 2023. Digital payments present a huge opportunity for various digitalization initiatives in the country.     

Advantages of Digitalization in Banking Sector

Pay or send money from anywhere

With the digitalization in the banking sector, it has offered the customers to use various types of services by sitting at home and not even restricted to any time hours. With the digital payment modes or through an online banking system one can send money from one account to any other account of any bank branch from anywhere and anytime. Modes like USSD (Unstructured Supplementary Service Data), E-Wallets, UPI, other banking applications allow us to do so. 

Easy and Convenient

Digitalization has made it easy and convenient for the customers and the financial institution, as now the use of physical cash has become very less as compared to digitalized cash and there is no need to take loads of cash from one place to another. The risk of human error has minimized which has led to an increase in consumer loyalty. Services like NEFT (National Electronic Fund Transfer), RTGS, etc have also made it easy to transfer the amount from one bank to another in a very convenient form.

Written Record

It has offered us to maintain our record, track our spending and budget planning. By using online applications we get a record of every transaction we make. Applications automatically record the transactions in the passbook or inside the E-Wallet App. 

Discounts from Taxes and Other Incentives

Many discounts were announced by the government and the central bank to encourage digital payments. If one uses digital modes to make a payment up to 2000 INR, one gets full exemption from service tax. Nowadays many mobile application operators also provide some incentives like cashback and other promotional offers which have also provided benefits to the consumers. One also gets 75 per cent discounts on fuels and 10 per cent discounts on insurance premiums of government insurers.  

Challenges Involved in Digitalizing Banking Activities

Some of the challenges to digitalization in the banking sector are:


Cybercrime is the use of digital instruments to further illegal ends, such as committing fraud, violating the privacy, or stealing identities. As the information and services have been digitalized the risk has been increased for both the bank and the consumer. Fraudsters have been known to be imaginative in their endeavours to siphon reserves, either as enormous sums in a discharge, or tiny sums from a great many accounts, over a significant stretch of time. To overcome these problems, the government and financial institutions have adopted various safety and cybersecurity measures. 

Attaining Application Perfection

There is an immense feeling of consolation while using smartphones with various applications and features. The introduction by banks and financial institutions of application has progressively offered comfort and extravagance of observing costs at any place and time. It has made it easy for consumers to enjoy the services provided by the bank through mobile applications. But these associations have missed out that for many people these services are inaccessible as some can’t afford mobile and some don’t know how to operate these applications. Nonetheless, most of these applications are frequently ridden with bugs and also face various performance issues. It is hard to explore these apps, on occasion, and they frequently crash.  

Delivering Quality at Speed

In the surge of needing to convey products and services at an accelerated speed, companies regularly tend to compromise on the quality of the application. The issue with quality is that there is nothing of the sort as a little bug; a bug is a bug, it can harm the smartphones easily. There have been a few cases of associations purposely choosing to disregard deserts in products and programming even before the thing hit the market.

Technology Upgrades

Technology is never constant, it always keeps on evolving. Hardly any year back, there were smartphones but now it has become mainstream. As technology develops, more and more banking services are digitized to cope with the competitive market. Thus, it becomes difficult for consumers to keep up with these advancements and learn accordingly. For instance, an adult man after learning the banking application with difficulty started using it but some days later as technology advances, new features and updates are released by the bank on its applications then it again becomes difficult for that man to learn the updated application.    

Fear Factor

One of the biggest challenges faced by the digitalization process is the fear factor of the older generation as they prefer using a conventional banking system rather than the modern one. They believe that it is safe and secure without any risks. The fear of losing money in the online transaction is a barrier to the usage of this modern system. There are many threats also because of which these people fear using this system, threats like hacking, spoofing, and sniffing. There is also a risk of data theft associated with this digitized system. They believe that hackers can easily hack their mobile servers and can withdraw their money which, in case, happens sometimes. 

Superheating with Innovation

Superheating the marketplace by offering imaginative services isn’t simply wanted, yet in addition, it required remaining on top of things and attracting a wide customer base. Particularly with an enormous base of youthful users, it becomes imperative to recognize the institution in the consistently becoming and competitive marketplace. In any case, financial institutions are frequently reluctant to take the jump, as they know that things can terribly reverse discharge and cause moment reactions from perturbed customers.


Any other sector is not developing the way the banking sector is digitizing. It is quickly transforming in this digital period with an aim to offer a superior customer encounter and by staying competitive. By taking a gander at the situation existing now in India, one can find that people are currently taking increasingly more bit of leeway of the digitalization if there should be an occurrence of banking.

Traditionally, banking practice used to focus on “prod expanding deals targets” as opposed to seeing how best to charm its customers. In recent times, banks are becoming more customer-centric or consumer-friendly and it has also become important to do so as to survive in the market. With the help of digitalization, Indian banks are now not only getting more customers but also delivering top-notch services, as efficiency counts as well. The key challenge against these financial institutions is that in this digital age they have to guarantee the protection of their customers against cybercrime and that the most exceptional cybernetic values are utilized. The change to digitalization and its congruence ought to serve to reduce costs for the business since this will reduce work and robotize the system. 


Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.

LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join:

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.


Please enter your comment!
Please enter your name here