DIGITISATION OF RETAIL BANKING PRODUCTS

TECHNOLOGY IN RETAIL BANKING

 Retail banking, which caters to the needs of individual customers,

relies heavily on the seamless integration of advanced
technologies to offer a diverse range of products and services.
 Technology has revolutionized the range of banking products
available to customers. From online banking and mobile apps to
digital wallets and contactless payments, customers now have
access to a plethora of convenient and user-friendly products.

IMPACT OF TECHNOLOGY IN RETAIL BANKING

Increased use of Data Analytics and Artificial Intelligence

 Banks use data analytics to analyze customer transaction history
and spending patterns to offer personalized product
recommendations.
 AI algorithms help in real-time risk assessment and fraud
detection, enhancing security and minimizing losses.
Self-learning Banking Systems
 AI-powered chatbots and virtual assistants handle complex
customer queries and continuously learn from interactions to
improve responses.
 Robotic Process Automation (RPA) automates routine tasks,
leading to increased efficiency and reduced errors.
Open Banking and Embedded Finance
 Open Banking through APIs enables third-party developers to
build innovative financial products and services, fostering
competition and collaboration.
 Embedded finance, simply put, is when a non-financial company
offers financial products and services through APIs and platforms.

INSTITUTE FOR DEVELOPMENT AND RESEARCH

IN BANKING TECHNOLOGY (IDRBT)

 It is an engineering training institution exclusively focused on

banking technology established by the Reserve Bank of India
(RBI) in 1996.
 The main focus of the institute is conducting applied research and
experimental development in the area of banking technology.
 This institute focuses on immediate and future needs and
requirements of the banking sector and developing technologies
to address them.

FORMATION OF IDRBT

 The Reserve Bank of India constituted a committee on

"Technology Upgradation in the Payments System" in the year
1994 under the Chairmanship of Shri W. S. Saraf,
 In its report submitted in December 1994, the committee
emphasized that an apex-level Institute is set up to undertake
 development and research in the area of Information Technology
applied to the financial sector, with a specific focus on banking.
 Reserve Bank of India approved this recommendation and
established an Institute with a brief to spearhead technology
absorption in the banking and financial sector of the country.
 Accordingly, the IDRBT started functioning on March 06, 1996.

TECHNOLOGY DEVELOPED BY IDRBT

 Indian Financial Network (INFINET)

 Structured Financial Messaging System (SMS)
 National Financial Switch (NFS)
 Indian Banking Community Cloud (IBCC)

INDIAN FINANCIAL NETWORK (INFINET)

 It is a secure, private, and closed user group communication
network established by the IDRBT in collaboration with the RBI.
 It is specifically designed to cater to the communication needs of
banks and financial institutions in India.
 INFINET serves as the backbone for interbank communication
and data exchange, facilitating seamless and secure transmission
of financial messages and transactions between participating
banks.

The Advantages of (INFINET)

Secure Communication
INFINET provides a secure and closed user group network, ensuring
the confidentiality and integrity of financial data and transactions
exchanged between participating banks.
Reliable Infrastructure
The network operates on a dedicated infrastructure, minimizing the
risk of interruptions and ensuring high levels of reliability for critical
financial communication.
Real-time Transactions
INFINET enables real-time electronic banking services, facilitating
quick and efficient interbank transactions, including fund transfers
and electronic clearing services.
Cost-effective
Utilizing INFINET reduces the reliance on physical communication
methods and manual processes, leading to cost savings and
increased operational efficiency for participating banks.
Efficient Interbank Communication
The network streamlines communication between banks, allowing
them to exchange financial messages and information seamlessly,
leading to faster decision-making and smoother operations.
Supports RBI Monitoring
INFINET enables secure communication between the Reserve Bank
of India (RBI) and various banks, assisting the RBI in effectively
monitoring the financial system and ensuring regulatory compliance.

STRUCTURED FINANCIAL MESSAGING SYSTEM (SFMS)

 It is a standardized messaging protocol used in the financial

industry to facilitate the exchange of structured information
between financial institutions and other participants.
 It is designed to enable efficient and reliable communication of
financial messages, instructions, and transactions.
 The SFMS was Launched on December 14, 2001, at IDRBT. It
allows the definition of message structures, message formats,
and authorization of the same for usage by the financial
community.
 Banks can link to the SFMS through appropriate connectivity like
Public Switched Telephone Network (PSTN) Integrated Services
Digital Network (ISDN), or Leased Lines.

Features Of SFMS

Standardization: SFMS provides a standardized format for

structuring financial messages, ensuring that all participants use the
same message elements and codes when transmitting information.
Types of Messages: SFMS supports a wide range of financial
messages, including payment instructions, securities trade
confirmations, fund transfers, account statements, and other types
of financial transactions.
Interoperability: SFMS promotes interoperability among various
financial systems and institutions, allowing them to exchange
messages efficiently regardless of their internal technology or
systems.
Security: SFMS incorporates security features to ensure the
confidentiality and integrity of transmitted financial information,
protecting sensitive data from unauthorized access or tampering.
Flexible Architecture for Centralized or Distributed Deployment
The SMS is designed with a flexible architecture that enables both
centralized and distributed deployment options, that suit their
operational requirements.
Batch Message Exchange Messages can be grouped together and
exchanged as batches of files, streamlining the process of message
transmission and reducing overheads.
Smart Card-Based User Access The system employs smart card-
based user access, adding an extra layer of security to ensure that
only authorized personnel can access and process financial
messages.
NATIONAL FINANCIAL SWITCH (NFS)
 It is a centralized payment processing system developed by
the (IDRBT) for the Indian banking industry.
 It is an interoperable network that enables seamless and secure
electronic funds transfer and ATM transactions across different
banks in India.
 NFS serves as the backbone for ATM operations and other
electronic payment services in the country.

FEATURES

Evolution and Ownership of NFS ATM Network

 The NFS ATM network was launched by the Institute for
Development and Research in Banking Technology (IDRBT) on
August 27, 2004.
 On December 14, 2009, the National Payments Corporation of
India (NPCI) took over the ownership and operation of the NFS
ATM network.

Membership Subscription Fees

 Banks or financial institutions wishing to join the NFS network as
members are required to pay a one-time subscription fee of Rs.
3,00,000 plus applicable taxes.
 In the NFS sponsorship model, the sponsor bank pays a one-time
fee of Rs. 6,00,000 plus applicable taxes.
Interchange Fees for ATM Transactions
 The card-issuing member (the bank that issues the debit card)
pays an interchange fee to the card-acquiring member (the bank
whose ATM is used) for each approved transaction.
 The current interchange fee for Cash Withdrawals and card-to-
card fund transfers is Rs. 17, and for other non-financial
transactions, it is Rs. 6.

Transaction Switching Fees

 Card-issuing members pay transaction switching fees of Rs. 0.45
per approved transaction to NPCI, along with applicable taxes.
 NPCI handles the switching of transactions between the issuing
and acquiring banks, ensuring smooth and secure
communication.

SERVICES OFFERED BY NFS

Interoperable Cash Deposit allows customers to deposit cash at any

participating bank's ATM.
Mobile Banking Registration enables customers to register for
mobile banking services directly from the ATM.
Card-to-Card Fund Transfer allows customers to transfer funds from
their debit card to another person's debit card within the same bank
or between different banks.
Statement Request allows customers to request an account
statement of their recent transactions from the ATM.
Aadhar Number Seeding enables customers to link their Aadhar
number to their bank account directly from the ATM/CDM.
INDIAN BANKING COMMUNITY CLOUD (IBCC)
Cloud Computing
 It is a technology model that allows users to access and
use computing resources over the internet on a pay-as-
you-go basis.
 Instead of owning and maintaining physical servers and
infrastructure, businesses and individuals can leverage the
resources and services provided by cloud service providers.

Community Cloud
It is a type of cloud computing deployment model that is shared
among multiple organizations or entities with common interests,
requirements, or compliance considerations.
It is designed to cater to a specific community's needs and may be
managed by one or more organizations or a third-party service
provider.

CLOUD SERVICE MODELS

Software as a service (SaaS): SaaS is an "on-demand software"
service where the required software is provided to the end users as
an application to run on their systems through the Internet.

Platform as a Service (PaaS): In PaaS, a computing environment is

provided as a service to the customers to build their own
applications that run on the provider's infrastructure.

Infrastructure as a Service (laaS): A pool of equipment including

servers, storage systems, network, data centres, etc., provided as a
service to the customers where providers can handle customers'
application workloads is referred to as laaS. The customer can host
their own software on the cloud infrastructure.

CUSTOMER ANALYTICS
It refers to the process of collecting, analyzing, and interpreting
customer data to gain valuable insights into customer behavior,
preferences, needs, and characteristics.

CUSTOMER ANALYTICS IN RETAIL BANKING

Enhancing Customer Engagement and Management Strategy

 Customer analytics integrated with the universal banking solution
enables banks to gain deep insights into customer behavior and
preferences.
 These insights can be leveraged to create personalized and
targeted marketing campaigns, leading to improved customer
engagement and loyalty.
Institutionalization of Customer Relationships
 The use of customer analytics helps banks institutionalize
customer relationships by understanding customers' needs,
preferences, and expectations.
 By tailoring products and services to meet individual customer
requirements, banks can foster long-term relationships with their
customers.
Customer Attrition Scores
 Customer attrition scores help banks identify customers at risk of
leaving or closing their accounts.
 Armed with this information, banks can take proactive measures
to retain valuable customers and prevent attrition.
Profitability Scores
 Profitability scores assist banks in assessing the profitability of
individual customers or customer segments.
 This insight helps prioritize high-value customers and tailor
offerings to maximize revenue generation.
Customer Segmentation
 Customer analytics enables banks to segment their customer
base based on various parameters such as spending patterns,
demographics, and product usage.
 Customer segmentation allows banks to target specific customer
groups with relevant and appealing offers.

TECHNOLOGY PROCESSES IN RETAIL BANKING

A Boston Consulting Group Study conducted in 2003, "Opportunities
for Action in Financial Services - Transforming Retail Banking
Processes". Four distinct process models have emerged from their
study.
 Horizontally

BUSINESS PROCESS

IN RETAIL BANKING
Organised
Model

STRUCTURE
Vertically Organised
Model

Predominantly
Vertically
Organised Model

Predominantly
Horizontally
Organised

Horizontally Organized Model

In this model individual process platform supports one product
only. The sub-data in the model is not shared with other products
and product platforms.

Vertically Organised Model

In this model, customer information is centralized. Centralized
customer information builds common origination and servicing
processes across all its retail banking products.

Predominantly Horizontally Organised Model

It is mostly product-oriented with common customer information
for some products. Customer data integration is available to a
certain extent for other products.
Predominantly Vertically Organised Model
It is a hybrid model that offers common information for most of the
related services. The basic information is available across products
for common services to the various products.

TECHNOLOGY INITIATIVES IN RETAIL BANKING

IMPLEMENTATION
MODELS

In -House Outsourcing

 The implementation model depends on the product range,

process requirements, technology preparedness, and delivery
capabilities including human resources and regulatory
prescriptions.
 Most PSBs use only in-house resources for retail banking. Only
for some activities like ATM/ Credit Cards/Debit Cards, the issue
part is outsourced due to a lack of in-house facilities.
 In the case of old private sector banks also, the activities are
carried out through in-house resources only.
 In the case of new-generation private sector banks, the model is
a balanced mix of outsourcing and in-house, though a little
skewed towards outsourcing. In some banks, the asset side is
outsourced
 whereas the liability side is not outsourced, though centrally
processed.
 In foreign banks, the implementation model is mostly outsourced
based on the business model.

WEALTH MANAGEMENT SOLUTIONS

It refer to comprehensive financial services and strategies designed
to help individuals and families manage and grow their wealth,
achieve financial goals, and secure their financial future.

DIGITAL LENDING
In this system the entire process of credit including sourcing, credit
and risk assessment, and disbursement happens on the digital
platform in a seamless manner within the shortest amount of time.
REGULATORY FRAMEWORK
 RBI has firmed up a new regulatory framework vide its notification
dated Aug 10, 2022, titled "Recommendations of the Working
Group on Digital Lending-Implementation.
 It is based on the principle that lending business can be carried
out only by entities that are either regulated by the Reserve Bank
or entities permitted to do so under any other law.

HIGHLIGHTS OF THE REGULATORY FRAMEWORK

Customer Protection and Conduct Issues
 All loan disbursals and repayments are required to be executed
only between the bank accounts of borrower and the Regulated
Entity.
 Any fees, charges, etc., payable to the LSPs in the credit
intermediation process shall be paid directly by RE and not by the
borrower.
 A standardized Key Fact Statement (KFS) must be provided to the
borrower before executing the loan contract.
 Automatic increase in credit limit without explicit consent of
borrower is prohibited.
 A cooling-off/ look-up period during which the borrowers can exit
digital loans by paying the principal and the proportionate APR
without any penalty shall be provided as part of the loan contract.
 REs shall ensure that they and the LSPs engaged by them shall
have a suitable nodal grievance redressal officer to deal with
FinTech/ digital lending-related complaints.
 As per extant RBI guidelines, if any complaint lodged by the
borrower is not resolved by the RE within the stipulated period
(currently 30 days), he/she can lodge a complaint under the
Reserve Bank - Integrated Ombudsman Scheme.

Technology and Data Requirements-

 DLAs should only collect the minimum amount of data necessary
to evaluate creditworthiness and assess the risk of lending to a
borrower.
 DLAs should maintain a clear record of the data they collect,
when it was collected, and for what purpose it was used.
 Before collecting any data from borrowers, DLAs must obtain
explicit consent from them.
 DLAs should provide borrowers with the option to accept or deny
consent for the use of specific data.
 Borrowers should have the right to revoke the consent they
previously granted at any time.
 DLAs must offer borrowers the option to request the deletion of
their data from the app's records.

Regulatory Framework
 All loans provided through Digital Lending Apps (DLAs) must be
reported to Credit Information Companies (CICs) by the entities
responsible for lending (REs), regardless of the loan's type or
duration.
 When financial institutions introduce new digital lending
products, especially those offered over merchant platforms
involving short- term credit or deferred payments, they must
report these products to CICs.