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How will Digital Banking Units (DBUs) transform banking in India?

Ever since demonetisation, the Government of India and regulatory bodies such as the Reserve Bank of India (RBI) & NPCI have taken a slew of measures to boost the penetration of digital payments in the country. Since then, there has been a stupendous increase in the adoption of digital payments. A testimony of this is the RBI’s Digital Payments Index (DPI) – which rose to 349.30 in March 2022 as against 153.47 in March 2019.

However, the evolution of digital payments has not taken place in silos. India is a cash-intensive economy where traditional payment channels such as Bank branches & ATMs have also seen numerous upgrades in the era of digitisation. While these upgrades & innovations have been successful in enhancing user experience & convenience, they have also helped banks optimising resources without compromising their overall efficiency. 

Initiatives such as the deployment of Cash Recycling Machines (CRMs) and RBI’s mandate to introduce Interoperable Card-less Cash Withdrawals (ICCW) on ATMs are being touted as game-changers for the payment ecosystem. It is estimated that there would be a deployment of around 50,000 ATMs/CRMs in this financial year, given the fresh RFPs being floated by leading banks. Recently, Honourable Prime Minister Narendra Modi inaugurated 75 Digital Banking Units (DBUs) with the aim to provide last-mile accessibility of banking services. 

What are Digital Banking Units?

Along with brick-and-mortar banking outlets, digital banking services are gaining momentum and to cater to these preferences & deepen the penetration of banking services pan India, the RBI announced the introduction of Digital Banking Units. Each Digital Banking Unit will be a specialised fixed point business hub housing digital infrastructure. Unlike a traditional bank branch, DBUs will be completely paperless. 

In addition to cash withdrawal/deposit through ATMs/CRMs, the DBUs will offer users a complete digital experience including the opening of bank accounts, fixed deposits & recurring deposits, printing of passbooks, mobile banking, internet banking, issuance of debit cards, credit cards, and mass transit system cards etc., through various digital touch points. These services will also include end-to-end processing of paperless loans for merchants and MSMEs.

How will these services benefit customers & banks?

As DBUs will house most essential banking services in a secured and connected environment, customers will be able to avail banking services in a cost-effective, convenient and paperless manner – all year round. While these services will be made available through self-service mode, there will be manual assistance through select hours of the day. This assistance will help customers from rural, semi-urban, tier III & below areas, senior citizens, or customers with little or no digital experience to avail benefits of digital banking. Subsequently, this experience will increase awareness of digital payments amongst a wider group of people. 

For digitally-savvy customers, these DBUs will enhance the level of convenience and offer them the ease of doing mundane banking activities in a faster, seamless & secure digital environment. This will also benefit customers in remote areas – especially with low banking penetration as the cost of operating & maintaining bank branches will significantly go down. 

There are numerous benefits of Digital Banking Units for banks as well. In this digital age, banks are actively looking at reducing their physical footprint to attain economies of scale. With the setting up of DBUs, banks can reduce the size of physical branches and enhance their digital capabilities to offer largely self-service model-based banking facilities. This will bring down the cost of infrastructure as well as the resources involved in a traditional banking setup, thereby reducing operational costs. For instance, a simple activity such as processing of a cash transaction incurs a cost of approx. INR 60 via a traditional channel but with a CRM housed in a DBU this cost can go down significantly. 

These units will also encourage financial literacy among the masses and improve customers’ outlook towards digital banking. In addition, these DBUs will reduce the burden on physical tellers and allow banks to reallocate their resources towards enhancing user experience. 

How can payment technology players help banks in this journey?

According to RBI’s notification on the Establishment of Digital Banking Units (DBUs) dated April 7, 2022, all Scheduled Commercial Banks (excluding Regional Rural Banks, Local Area Banks & Payments Banks) are allowed to opt for an insourced or an outsourced model for the implementation of DBU services. This notification also states that each Digital Banking Unit must house products such as PoS, ATMs, CRMs, Internet Banking Kiosks e-KYC kiosks etc. Since payment technology players such as AGS Transact Technologies are already equipped to offer such products & solutions, banks can outsource the setting up of DBUs to them and focus on enhancing customer experience. While leading banks such as ICICI Bank & HDFC Bank were already providing e-lobby/digital lobby services, there are now 11 Public Sector Banks, 12 Private Sector Banks and one Small Finance Bank participating in this initiative. 

In conclusion, DBUs have the potential to transform Indian banking ecosystem and bring more customers under the ambit of digital India. In tier 3 & below cities, these DBUs can potentially deepen the acceptance of digital solutions with merchants opting for paperless loan procedures and retail customers enjoying round-the-clock banking facilities. Further, it will truly ensure the coexistence of cash & digital solutions – thereby strengthening the overall payment ecosystem pan India.

(Author: Mr. Stanley Johnson, Executive Director, AGS Transact Technologies Ltd)

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