The rise of digital banking has been one of the most transformative changes in the financial sector in recent years. In India, digital banking has had a particularly profound impact on the financial ecosystem, providing millions of people with access to banking services that were previously out of reach. In this article, we’ll explore how digital banking has transformed India’s financial landscape, and what it means for the future of finance in the country.
First, let’s look at the key drivers behind the growth of digital banking in India. One of the main factors has been the government’s push towards a cashless economy, which began in earnest in 2016 with the demonetization of high-value currency notes. This move forced people to turn to digital payment methods, such as mobile wallets and online banking, to carry out transactions. Additionally, the widespread adoption of smartphones and the increasing availability of affordable internet connectivity has made it easier for people to access banking services on their mobile devices.
The impact of digital banking on financial inclusion in India cannot be overstated. According to a report by the Reserve Bank of India, the number of banking outlets (branches and ATMs) per 100,000 adults in India increased from 12 in 2001 to 16 in 2017. However, the number of banking outlets per 100,000 adults in urban areas was 47, compared to just 19 in rural areas. This urban-rural divide meant that many people in rural areas had limited access to banking services. Digital banking has helped bridge this gap by providing people in remote areas with access to banking services via their mobile devices. For example, services like Paytm, PhonePe, and Google Pay have become hugely popular in India, allowing people to make digital payments, transfer money, and even take out loans from the comfort of their homes. Even LiteFin has developed ways to get all your banking information under one roof to streamline your finances.
Another way in which digital banking has transformed India’s financial ecosystem is by making banking services more affordable and accessible to the masses. Traditional banks often require customers to maintain a minimum balance in their accounts or charge high fees for transactions, making banking services unaffordable for many people. Digital banking, on the other hand, has significantly reduced the cost of providing banking services, allowing banks and fintech companies to offer more affordable services to their customers. This has led to a significant increase in the number of people using banking services in India. According to a report by the Boston Consulting Group, the number of digitally active consumers in India is expected to reach 1 billion by 2025, up from 400 million in 2018.
Digital banking has also had a significant impact on the Indian economy as a whole. By making it easier for people to access banking services, digital banking has helped increase financial inclusion, which in turn has led to greater participation in the formal economy. This has enabled more people to access credit and investment opportunities, leading to increased economic growth and job creation. Additionally, digital banking has helped reduce the amount of cash in circulation, which has made it easier to track illicit financial flows and curb money laundering.
However, there are also challenges associated with the growth of digital banking in India. One of the main challenges is the issue of cybersecurity. As more and more people turn to digital banking, the risk of cyberattacks and data breaches increases. In 2019, India saw a significant increase in cyberattacks targeting banks and financial institutions. To address this issue, the government has introduced a number of measures to improve cybersecurity, such as the creation of a National Cybersecurity Coordinator and the introduction of guidelines for data protection and privacy.
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