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The evolution of banking channels in India - I

Posted by Anuradha Mallya (View Profile | View All Posts) at 7:14 AM

The banking sector's first ATM debuted in the late sixties, nearly five-and-a-half centuries after the world's first modern bank. From there, the pace of automated customer interfaces really stepped up - online banking in the mid-nineties, mobile banking in the early aughts and social media access in 2012. Today, banks are already in a race to conquer the wearables market even though the concept itself is yet to completely break free of the proof-of-concept stage.
In India, the ATM made its first appearance in the 1980s and though the subsequent growth has been prolific, penetration, at 110 units per million inhabitants or 1/8th that in other emerging markets, still remains far from adequate. Nevertheless, the impact of ATMs cannot be understated as they helped transition Indian customers from an ingrained culture of assisted banking to automated, self-service banking.

The advent of the millennium launched India's ongoing digital channel revolution. According to 2011 figures, a mere 7 percent of Indian customers used Internet banking. Mobile banking has also been on a low-volume high-growth trajectory - the user base in 2013 was 22 million, up 74 percent over the previous year, though transaction value grew 228.9 percent over the same period. But some banks are bucking that broad trend with, ICICI Bank, for instance, hosting approximately 85 percent of transactions in non-branch channels.     

The channel banking landscape in India today is more heterogeneous than ever before with fully assisted (e.g. branch), partly assisted (e.g. virtual tellers, videoconferencing) and self-service (Internet, mobile banking, e-lobbies) options. Apart from delivering unfettered access and convenience to customers, these new channels have also helped banks optimize cost-per-transaction metrics and delivered significant gains in both share of market and wallet.

The regulatory environment is also evolving rapidly with the RBI laying out stringent guidelines on issues such as ATM security, fund transfer, prevention of money laundering & fraud etc. 

It is almost inevitable that alternative channels will account for a lion's share of Indian banking transactions in the years to come. So, what then will drive the growth of channel banking in India? Read about that in my next post.

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