It Takes a Tap to Bank
Outlook Money|August 2021
Digital-only banks are making giant strides in India with millennials adopting the format faster than thought but regulatory uncertainties cloud their fate
Madhuparna Roy Sukul

You can’t escape the long queue of people with each one of them waiting to ask a dozen questions to the man at the counter. No matter how hard it is, you have to fill up the small boxes using the best of your calligraphic skills on those rectangular pieces of paper if you want to square your deal. You can’t say no to a formal, official letter in black and white if you need to authorize someone to fill it in for you. And, lastly, you must practice your signature a hundred times if you want your cheque to be processed at one go.

That’s the bank pre-millennial Indians have seen and grown up with. All this was normal for them, all the sulking and cursing stowed in. As the pandemic split the world into two, many pre-Covid practices began transforming into their post-Covid neo-normal avatars. That made the beginning of a bull run for the digital-only banks.

The brick-and-mortar banks had been running the risk of losing customers with time mismatches and manpower issues adding to a rise in customer discontent. “It became important for banks to ascend with the next wave in banking, which scales the entire bank down to the size of an iPad, tablet or smartphone, and promises the convenience of having an entire bank on our fingertips,” says a study by Infosys. That is the world of digital-only banking.

A neo-bank or a digital-only bank operates exclusively online, using the internet and cloud computing. The pandemic-induced restrictions on mobility and social distancing fostered the growth of these neo-banks and their future is sealed with the digital disruption transforming our lives completely.

A digital revolution sweeping through the world in the 21st century has redefined and reshaped the customer relationship with banks. Increasingly high-end banking expectations of the millennial generation paved the way for the emergence of digital-only banks around the world. Brazil and Germany are leading the pack with 28 per cent of citizens holding digital-only bank accounts. “A new experience-centered generation, with higher expectations and lower loyalty, appears, pressuring banks to review their online services,” says a Deloitte analysis on the evolving digital banking system.

With access to bank branches being restricted, working hours being shortened, and the fear of contamination from paper bills and coins gripping every individual, the Covid crisis gave the wave of digital disruption renewed thrusts. “What we’re seeing is the greatest acceleration of digital banking in history,” American Banker magazine quoted Wells Fargo Securities analyst Mike Mayo in its June issue. “What’s taken place over the last few months may have taken place over two to 10 years” if the pandemic had not come along.

A recent Finder survey covering 2,512 people, shows that around 22 per cent of Indians – an estimated 205 million – have a digital-only bank account and, over the next four years, 43 per cent of Indians – around 400 million – are expected to join the league. Around 12 per cent of respondents said they plan to open a digital-only or 100 per cent online bank account and an additional 9 per cent said they plan to open one over the next five years. Put together, more than 397 million Indians are expected to hold online-only bank accounts in the next five years.

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