10 Jun Fintech challenge is a fantasy
Fintech challenge is a fantasy – Today Current Affairs
Digital banks are a threat, not so much to banks as to banking stability on account of the systemic risk they pose.
Today Current Affairs
What are Digital Banking Units (DBUs)?
A digital banking unit is a specialized fixed point business unit or hub housing certain minimum digital infrastructure for delivering digital banking products and services as well as servicing existing financial products and services digitally in self-service mode at any time.
Who can set up DBUs? The Hindu Analysis
Commercial banks (other than regional rural banks, payment banks and local area banks) with past digital banking experience are permitted to open DBUs in tier 1 to tier 6 centres, unless otherwise specifically restricted, without having the need to take permission from the RBI in each case.
Infrastructure and Resources of DBUs : The Hindu Analysis
Each DBU shall be housed distinctly, with the separate entry and exit provisions. They will be separate from an existing Banking Outlet with formats and designs most appropriate for digital banking users.
For front-end or distribution layer of digital banking, each bank would choose suitable smart equipment, such as Interactive Teller Machines, Interactive Bankers, Service Terminals, Teller and Cash Recyclers, Interactive Digital Walls, Document uploading, self -service card issuance devices, Video KYC Apparatus, secured and connected environment for use of own device for digital banking, Video Call / Conferencing facilities, to set up an DBU. These facilities can be insourced or outsourced while complying with relevant regulatory guidelines.
The back-end including the Core Banking System and other back office related information systems for the digital banking products and services can be shared with that of the incumbent systems with logical separation. Alternatively, banks can adopt more core-independent digital-native technologies offering better scalability, flexibility in creating new / reusable digital environments through continuous development / software deployment and interconnectivity specifically for this business segment, based on their digital strategy. The Hindu Analysis
If the digital banking segment of a bank uses an API layer (integration layer) to connect with external third-party application providers, the same should be tested in an isolated/ test environment before being integrated to bank’s core systems backed by comprehensive risk evaluation and adequate documentation.
Banks are free to adopt an in-sourced or out-sourced model for operations of the digital banking segment including DBUs. The outsourced model should specifically comply with the relevant regulatory guidelines on outsourcing.
As the purpose of DBUs is to optimally blend digital infrastructure with ‘human touch’, remote or in situ assisted mode arrangements in right proportion should be planned and put in place by the banks. The Hindu Analysis
The establishment of DBUs should be part of the digital banking strategy of the bank. The operational governance and administrative structure of the DBUs will be aligned with that of the Digital Banking Segment of the bank. However, in order to accelerate digital banking initiatives, each DBU will be headed by a sufficiently senior and experienced executive of the bank, preferably Scale III or above for PSBs or equivalent grades for other banks who can be designated as the Chief Operating Officer (COO) of the DBU.
What are the services that will be provided by these units? The Hindu Analysis
As per the RBI, each DBU must offer certain minimum digital banking products and services. Such products should be on both liabilities and assets side of the balance sheet of the digital banking segment. Digitally value-added services to conventional products would also qualify as such.
The services include savings bank accounts under various schemes, current accounts, fixed deposits and recurring deposit accounts, digital kit for customers, mobile banking, Internet banking, debit cards, credit cards, and mass transit system cards, digital kit for merchants, UPI QR code, BHIM Aadhaar and point of sale (PoS). The Hindu Analysis
Other services include making applications for and onboarding of customers for identified retail, MSME or schematic loans. This may also include end-to-end digital processing of such loans, starting from online application to disbursal and identified government sponsored schemes that are covered under the national portal.
How will these DBUs compete with fintechs? The Hindu Analysis
Currently, fintechs operating as neobanks offer digital banking services but they do so in partnership with non-banking financial companies (NBFCs). Some of the neobanks offering services in India are Jupiter, Fi Money, Niyo, Razorpay X.
Compared to conventional banks with online and mobile banking facilities, neobanks or digital banks excel at product innovation and offer far better digital solutions. However, given the arrangement they have currently with NBFCs or scheduled banks to conduct the actual banking part, some in the industry have pegged these digital banks as “glorified digital distribution companies”.