Banking Trends in India

(KYC Norms and Technologies - ATM's and Core

Banking)

Index -
1. INTRODUCTION (REASON FOR CHOOSING TOPIC)

2. AIM OF PROJECT

3. ANALYSIS OF PROJECT DATA (THEORETICAL AND

STATISTICAL )

4. METHODOLOGY USED

5. FINDINGS & CONCLUSION

6. BIBLIOGRAPHY
Introduction

Reason for choosing this topic is that, in recent years, the Indian
economic environment has seen a lot of changes because of reforms and
measures taken by the banks. The largest change is seen in the financial sector
where the banking sector is the largest player to notice this change. So, the
banking sector is strong enough to withstand any sort of pressure and
competition. Thus, these trends in banking have been very visible in the last few
years and we can study its statistical and theoretical data to measure the drastic
changes in their usage.

India, now, has a fairly stable banking sector with different classes of banks
contributing to it. Thus, these include foreign banks, public banks, private sector
banks, and others. Reserve Bank of India is head of all these banks.

Indian banking sector can be majorly divided into three sections.

Phase I – This is from 1786 to 1969 and it was the initial phase of the banking.
So, in this phase, many small banks were set up.

Phase II – This phase can be considered from 1969 to 1991 where

regularization, nationalization, and growth of banks comes into the picture.

Phase III – This phase is from 1991 onwards and it consists of liberalization and
it’s after effects.

Trends in Banking

In recent years, there have been many changes in the banking industry. These
trends in banking have made the whole process of banking very easy. These
trends include the following:

1] Mobile Banking –

It is a service provided by the particular bank to the customer to avail service

through their registered mobile number. The facility only is available on
registered number and the number which is linked to Aadhar number of the
customer. it usually available on a 24 hours basis like ATMs. Transaction
through mobile banking depends on the banking application provided by the
particular bank. The services are electronic bill payment, remote cheque
deposits, p2p payment etc. Mobile banking services includes Mini statement &
alert on account activity Access to loan statement Fund transfer Bill payments
2] NEFT

This facility was provided in Nov. 2005. This system is a nationwide system
that allows individuals, firms and corporation to transfer their funds
electronically from any bank branch to any individual, firm or corporate having
an account with any other bank branch in the country. It is done through
electronic message.

3] RTGS – Real Time Gross Settlement

RTGS was introduced in India in March 2004. It is a system through which a

bank receives instruction in the form of electronic for transferring the funds
from one bank account to the other bank accounts.

As the name suggests, the transfer of funds between the accounts takes place in
‘real time’. The RTGS system is kept running and maintained by the RBI.

So, it is operated by the RBI who provides it the faster and efficient way to
transfer the funds while facilitating the various financial operations.

Thus, the money send under this system is instantaneous and the beneficiary
gets the money within two hours.

4] Electronic Clearing Service

ECS is an electronic system that is used to make the payments and receipts that
are in bulk. The payments need to be similar in nature which can be smaller in
amount and repetitive in nature.

Thus, this facility is specifically beneficial to government agencies and companies

that make or receive large bulk payments.

5] EFT – Electoral Funds Transfer

This is a system to transfer the money from one’s bank account to other
accounts. So, in this system, the concerning party that wants to make the
payment instructs the bank and make a cash payment or authorizes the bank to
transfer the funds directly. So, the sender should provide the bank with the
complete details like the name of the receiver, account type, account number of
the respective bank, city name, branch name, and other details to the bank.

Thus it will ensure that the amount reaches the beneficiaries account quickly
and correctly.
6] ATM – Automatic Teller Machine

This is the most popular method in India to withdraw the money. The customers
can enable this service to withdraw the money 24 by 7. It allows the customers
to perform all day to day bank activities without interacting with any humans.
Furthermore, these facilities are also used for the payment of funds, utility bills,
etc.

The other trends in the banking sector include a point of sale terminal,
telebanking, and electronic data interchange.

An Automated Teller Machine, better known as an ATM, is a specialized

computer that makes it convenient for bank account holders to manage their
money. It allows them to check their account balances, withdraw or deposit
money, transfer money from one account to another, print a statement of
account transactions, and even purchase stamps. By inserting an ATM or debit
card in the machine and entering a Personal Identification Number (PIN), one
can access the services above 24 hours a day, 7 days a week.

The social backdrop in different countries in the 1960s and 1970s played a
pivotal role in furthering the cause of ATMs.

In the U.K., worker unions were gaining power and influence during that
period. Banking unions were putting unprecedented pressure on the banks to
close on Saturdays. At the same time, “automation” was a buzzword that
appealed to the masses and was thought to save time and labor costs.
Automating the teller process seemed to appease all the stakeholders, satisfying
the customers and the banking unions, and driving innovation in the banking
industry.

In the U.S., banks were encountering resistance from their employees for their
horrible working hours. The push for ATMs was motivated by the need to
shorten banking hours, reduce congestion in bank branches, and cut labor costs.
The prospect of attracting more customers with shiny new gadgetry appealed to
the businessmen and opened the doors to up-selling them on loans and credit
cards.
7] KYC – Know Your Customer

Knowing who your customer is and enacting protocols to prevent financial

crime are ongoing challenges for financial institutions. Significantly, financial
institutions (including banks, credit unions, and Fortune 50 financial firms)
must comply with a set of increasingly complex regulations for customer
identity verification called KYC. In this article, we’ll cover KYC requirements
in the U.S.

KYC, otherwise known as “Know Your Customer” or “Know Your Client,” is

a set of procedures for verifying a customer’s identity before or while doing
business with banks and other financial institutions. Compliance with KYC
regulations can help keep money laundering, terrorism financing, and more run-
of-the-mill fraud schemes at bay. By first verifying a customer’s identity and
intentions at the time of account opening and then understanding their
transaction patterns, financial institutions are able to more accurately pinpoint
suspicious activities.

8] Core Banking -

Core banking is normally defined as the business conducted by a banking

institution with its retail and small business customers. Many banks treat the
retail customers as their core banking customers and have a separate line of
business to manage small business. Larger business is handled by the corporate
banking division of the institution. Core banking basically is depositing and
lending of money.

Now a days, most banks use core banking applications to support their
operations where ‘CORE’ stands for “Centralized Online Real-time
Environment”. This basically means that all the bank’s branches access
applications from centralized data centers. It means that the deposits made are
reflected immediately on the servers of bank and the customer can withdraw the
deposited money from any of the branches of bank throughout the world. These
applications now also have the capability to address the needs of corporate
customers providing a comprehensive banking solution. Normal core banking
functions will include deposit accounts, loans, mortgages and payments. Banks
make these services available across multiple channels like ATMs, internet
banking and branches.

Aim of Project -
To learn about key trends in banking sector, KYC technologies & norms and
ATMs.

Banking systems and financial institutions are integral parts of an economy.

Seamless functioning of these sectors is important for an economy to grow. Due
to the advent of digital technology, banking and financial services have
undergone a massive shift in their mode of operations. New trends are gaining
momentum at a fast pace as the customers find it convenient and also flexible at

the same time. The emergence of financial technology has resulted in the
introduction of several technological advancements in the industry. Fintech
companies, internet banking and mobile banking are just some examples that
mark this shift.

For most of the past two decades before the pandemic, the banking industry
assumed a mostly passive mode with respect to change and innovation. Even
though the marketplace was changing rather quickly, a great deal of the focus at
banks and credit unions was around managing expenses, securing systems,
responding to new regulations, and finding new sources of fee revenue

While digital transformation was an area of emphasis, changes to systems,

processes, products, and experiences were mostly modest, representing
iterations to what was already familiar. The result was an industry lacking any
true differentiation.

The pandemic forced financial institutions to become proactive, and to question

existing business models. At the same time, fintech firms emerged that
challenged the status quo in banking. Almost immediately, it became apparent
that most organizations were not prepared to take advantage of the opportunities
of a changing digital marketplace.

Banks are closely linked with our everyday lives and activities. Drawing
salaries, paying bills, buying homes, building up savings and taking out loans
all involve transactions with banks. Businesses also rely on the banking system
for settlement of their transactions and meeting other financial needs. Hence, it
is important for individual to stay update about the latest trends and
technologies in the banking sector and this is the aim of our project.

Analysis (Theoretical & Statistical) –

Banking systems and financial institutions are integral parts of an economy.
Seamless functioning of these sectors is important for an economy to grow. Due
to the advent of digital technology, banking and financial services have
undergone a massive shift in their mode of operations. New trends are gaining
momentum at a fast pace as the customers find it convenient and also flexible at
the same time. The emergence of financial technology has resulted in the
introduction of several technological advancements in the industry. Fintech
companies, internet banking and mobile banking are just some examples that
mark this shift. Today, we will read about the latest trends that are
revolutionising the Indian banking and financial sector.

ATM –

ATM is one of the most popular trends among all of the banking trends. It’s
analysis can be done by distributing it’s uses in credit and debit cards as
follows-
The curve line represents how the total number of transactions done by debit
cards at ATM will increase exponentially in the near future that is in the next 5
years

The curve line represents how the total number of transactions done by credit
cards at ATM will increase exponentially in the near future that is in the next 5
years

Above analysis proves that people are reliable towards using the ATM trends.

Mobile Banking

Almost a decade back, even though digital services came into the picture, it was
only done through desktop computers which means the customer must be at
home or at a place with a computer and internet connection. But the vast
penetration of smartphones created a need among customers to avail banking
services on their mobile phones. Cheap data charges also contributed towards
the increase in usage of mobile banking. UPI is also included in mobile
banking.

This analysis illustrates that, the average transaction value has grown up from
INR 1123.83 in 2012-13 to INR 10394.10 in 2015-16. That shows confidence
with the medium. People are doing fairly large value retail transactions with
mobile banking. Mobile banking is becoming mainstream.

Unified Payment Interface (UPI)

UPI is a trend that emerged in the last couple of years and it is revolutionizing
the way we pay and receive money. Transactions can be done within seconds
using this interface. Goggle Pay and BHIM (Government of India) are two
major interfaces among numerous other services that enable easy payment even
if you are out of physical cash. In June 2021, providers of unified payments
interfaces (UPI) in India recorded a total of 2.8 billion digital payment
transactions worth over five trillion Indian rupees. This was an increase
compared to May 2021.

A report in the month Feb. 2020 states that UPI is the most popular and
preferred payment mode in India in terms of volume of transactions as
compared to other means of payment such as cards and IMPS. This report
further said that in Year 2019, the total number of transactions performed
through UPI is 10.8 billion. This is 188% increase on year by year basis and this
can be proved by following data as given below –
Fintech Companies

Fintech companies specialise in developing technology solutions that help

companies to manage the financial aspects of their business, like new software’s
applications, processes as well as business models. Investments made on
Fintech companies have increased drastically in the past decade making it a
multi-billion dollars industry globally. 

Digital-only Banks

Digital-only banks operate only through IT platforms which can be accessed

using mobile phones, laptops or tablets. Digital-only banks operate in a
paperless and branchless model and seem to overtake the traditional system of
banks in the future. These banks provide high-speed banking facility at a low
transaction charge. These virtual banks are an ideal choice for the current fast-
paced world

The following chart illustrates the NEFT details –

This graph shows the total number of transactions at the national level where
the money was deposited by the people from withdrawal their bank account.
The duration of this graph is from Jan.09 to Jan.21. We can observe the gradual
increase in the number as well amount of transactions during the last 12 years at
present i.e. Jan.16 total amount of is 40 crores and is gradually going to increase
to more than 90 crores. While the number of transactions is going to increase
from 125 crores to around 670 crores.

Hence this analysis statistically proves that, people are more often to digital
banking and its services provided.

The following figure shows the value of digital banking from 2018 to expected
year 2028
India digital banking platform market was worth USD 776.7 million in the year
2021. According to the study, the market is estimated to grow at a CAGR of
9.8%, earning revenue of around USD 1,485.5 million by the end of 2028. The
growth of the India digital banking platform market can be attributed to rapid
digitization and growing adoption of advanced technologies, such as cloud
computing, the Internet of Things (Internet of Things), Artificial Intelligence,
and so on.

According to our analysis, we illustrated that the service used mostly by the
people is Online Payment. People prefer to pay online rather than visiting the
place physically to pay. Nearly 32% people use the service of online payment
mostly. The second most used service is Fund Transfer accounting to about
26%. The third most used service is ATM Banking accounting to about 22%.

Methodology:
KYC –

To create and run an effective KYC program requires the following elements:

Customer Identification Program (CIP) - A critical element to a successful CIP

is a risk assessment, both at the institutional level and at the level of procedures
for each account. While the CIP provides guidance, it’s up to the individual
institution to determine the exact level of risk and policy for that risk level. The
minimum requirements to open an individual financial account are clearly
delimited in the CIP:

Name

Date of birth

Address

Identification number

While gathering this information during account opening is sufficient, the

institution must verify the identity of the account holder “within a reasonable
time.” Procedures for identity verification include documents, non-documentary
methods (these may include comparing the information provided by the
customer with consumer reporting agencies, public databases, among other due
diligence measures), or a combination of both. These procedures are at the core
of CIP; as with other Anti-Money Laundering (AML) compliance requirements,
these policies shouldn’t be followed willy-nilly.

They need to be clarified and codified to provide continued guidance to staff,

executives and for the benefit of regulators. The exact policies depend on the
risk-based approach of the institution and may consider factors such as:

The types of accounts offered by the bank

The bank’s methods of opening accounts

The types of identifying information available

The bank’s size, location and customer base, including the types of products and
services used by customers in different geographic locations

2. Customer Due Diligence –

For any financial institution, one of the first analysis made is to determine if you
can trust a potential client. You need to make sure a potential customer is
trustworthy; Customer Due Diligence (CDD) is a critical element of effectively
managing your risks and protecting yourself against criminals, terrorists and
Politically Exposed Persons (PEPs) who might present a risk. There are three
levels of due diligence: Simplified Due Diligence (“SDD”) are situations where
the risk for money laundering or terrorist funding is low and a full CDD is not
necessary. For example, low value accounts or accounts. Basic Customer Due
Diligence (“CDD”) is information obtained for all customers to verify the
identity of a customer and asses the risks associated with that customer.
Enhanced Due Diligence (“EDD”) is additional information collected for
higher-risk customers to provide a deeper understanding of customer activity to
mitigate associated risks. In the end, while some EDD factors are specifically
enshrined in a country’s legislations, it’s up to a financial institution to
determine their risk and take measures to ensure that their customers are not bad
actors.

Some practical steps to include in your Customer Due Diligence program

include:

Ascertain the identity and location of the potential customer, and gain a good
understanding of their business activities. This can be as simple as locating
documentation that verifies the name and address of your customer

When authenticating or verifying a potential customer, classify their risk

category and define what type of customer they are, before storing this
information and any additional documentation digitally.

Beyond basic CDD, it’s important that you carry out the correct processes to
ascertain whether EDD is necessary. This can be an ongoing process, as existing
customers have the potential to transition into higher risk categories over time;
in that context, conducting periodic due diligence assessments on existing
customers can be beneficial.

Occupation of the person

Type of transactions

Expected pattern of activity in terms of transaction types, dollar value and

frequency

Expected method of payment

Keeping records of all the CDD and EDD performed on each customer, or
potential customer, is necessary in case of a regulatory audit.

3. Ongoing monitoring –
It’s not enough to just check your customer once. You need to have a program
to monitor your customer on an ongoing basis. The ongoing monitoring
function includes oversight of financial transactions and accounts based on
thresholds developed as part of a customer’s risk profile. Depending on the
customer and your risk mitigation strategy, some other factors to monitor may
include:

Spikes in activities

Out of area or unusual cross-border activities

Inclusion of people on sanction lists

Adverse media mentions

There may be a requirement to file a Suspicious Activity Report (SAR) if the

account activity is deemed unusual.

Periodical reviews of the account and the associated risk are also considered
best practices.

Corporate KYC

Just as individual accounts require identification, due diligence and monitoring,

corporate accounts require KYC procedures as well. While the process bears
similarity to KYC for individual customers, its requirements are different;
additionally, transaction volumes, transaction amounts and other risk factors,
are usually more pronounced so the procedures are more involved. These
procedures are often referred to as Know Your Business (KYB).

Online Banking

Online banking requires an internet connection to be accessed, so it is primarily

used either with a desktop computer or a laptop. Online banking shares a few
similarities with its cousin, the ATM. Each allows users to make certain
transactions without having to physically step into a financial institution, and
each allows the ultimate in convenience because they are accessible 24/7.
However, many of the similarities end right about there. Unlike ATMs, with
online banking there are no lines at all, and you do not have to leave your home
to make a transaction. You are still able to move money to various accounts and
check your balances. Online banking also allows customers to pay their bills
online instead of using checks. Gone are the days when a customer had to take
or physically mail a check, because most services are available to be paid online
as long as the customer is set up with online banking. Online banking can also
give you alerts as to when your account drops to a specific amount so that you
can make a deposit to avoid any overdraft fees.

Findings & Conclusions:

In the past few years, the Indian banking sector has completely transformed to
another spectrum. The banks are facing many challenges and many
opportunities in current digital banking scenario. The main objectives behind
integrating banking services with technology are, convenience efficiency and
transparency.

With the rapid development of digital technology, it became necessary for

banking and financial services in India to keep up with the changes and develop
new digital solutions for the tech-savvy customers.

Mobile banking is one of the dominant trends in digital banking industry. The
use of a Smartphone to exercise various banking services like checking account
balance, money transfer, and bill payments, without the need of visiting the
branch. This trend has taken over the conventional banking systems. In few
years, mobile banking is expected to become even more efficient and effortless
to keep up with the customer demands. Mobile banking future trends hint at the
acquisition of IoT(Internet of Things) and Voice-Enabled Payment Services to
become the reality of tomorrow. On the other hand, Unified Payments Interface
or UPI is the one of the fastest and most secure payment gateway that has
entirely changed the way payments are made.

Similarly, the trends like biometrics, internet penetration, wearable technology

are also getting popular now a days.

Therefore, from this analysis we can clearly conclude that, Technology has now
become familiar to most individuals, to an extent that it influences their
lifestyle. Many financial innovations like UPI, Internet Banking, Mobile
Banking, Mobile Wallet, QR Code etc. have completely changed the face of
Indian banking. The opportunities can availed efficiently and the challenges can
be easily counter balanced by adopting more innovative solutions and
technological, security measures.

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