Former RBI deputy governor R. Gandhi at the 12th Mint Annual Banking Conclave
Former RBI deputy governor R. Gandhi at the 12th Mint Annual Banking Conclave

Digital banking emerged in response to expectations of millennials, says Gandhi

  • Former RBI deputy governor R. Gandhi pointed out that retail electronic transactions have recorded a sharp increase in growth rate
  • Former RBI deputy governor said another factor contributing to the promotion of digital banking is the fast growing e-commerce sector

Mumbai: The emergence of digital banking as we see today is a response to the expectations of millennials who move effortlessly between business and pleasure and have short attention spans, said former Reserve Bank of India (RBI) deputy governor R. Gandhi at the 12th Mint Annual Banking Conclave.

“Instant gratification, mixing business and pleasure or effortlessly vaulting from one to another and back any number of times within a minute, social media-grounded communication, and short and shorter attention spans define this generation. Emergence of digital banking is in response to their expectations," said Gandhi, who delivered the keynote address at the event.

He said another factor contributing to the promotion of digital banking is the fast growing e-commerce sector, with their need to get paid for their commercial transactions instantly, both digital payments and digital credit got immense fillip.

Gandhi pointed out that retail electronic transactions such as NEFT, IMPS, ECS and NACH have recorded a sharp increase in growth rate, from 26% in 2012-13 to 86% in 2016-17 in terms of volume, and 40% and 50%, respectively, in terms of value in the same period.

“UPI (unified payments interface), which was introduced in August 2016, recorded 903 million transactions in 2017-18 and has already recorded an explosive growth of more than five times in this financial year of 2018-19 to 5.55 billion by February 2019 in terms of volume and seven times from 1.10 trillion to 7.38 trillion in terms of value during the same period," said Gandhi.

Gandhi termed the pace of growth in retail electronic transactions each year as amazing. “Card transactions (after excluding card transactions at ATMs) have been recording 30% growth year-on-year since 2011-12, both in terms of volume and value of the transactions. The wallet transactions have been notching up much higher growth rates, or more than doubling, both in terms of volume and value, year-on-year right from 2012-13," he said.

Gandhi added that the ticket size of each transaction in digital payment modes like RTGS, NEFT, IMPS, wallets and mobile banking has been trending down. For example, the average per RTGS transaction has been trending down from 8.9 crore in 2004-05 to 1.2 crore in 2017-18; average NEFT transaction recorded a secular fall from 1.2 lakh to 64,000 in 2014-15, and thereafter it is trending higher at 88,000 in 2017-18; average value of wallet transactions has trended down from 2,026 in 2011-12 to just 409 in 2017-18.

“This clearly shows that adoption of digital transactions has been progressively reaching lower end of the population and businesses," said Gandhi.

He said when computerization started in India’s banking sector in the early 1980s, the scenario was so adverse that it had to be euphemistically called “mechanization of bank operations".

“At that time, computerization was restricted to back office functions; front office functions were not to be mechanized i.e, computerized, so said various agreements of unions with bank management," he said.

Currently, he said, digital banking covers mass banking and retail banking in full—be it personal banking or business banking and only corporate banking and project financing are not fully serviced by digital banking. “One can easily understand that as these need sophisticated bespoke solutions, so they are not so easily amenable to digitizing," explained Gandhi.

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