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Niti Aayog Proposes Full-Stack Digital Banks: What It Means For India’s Banking System

NEW DELHI: Niti Aayog has proposed establishing full-stack ‘digital banks,’ which would largely deliver their services over the internet and other proximal means rather than physical locations. These planned banks will aid in mitigating the country’s growing financial difficulties.

In a recent discussion paper titled ‘Digital Banks: A Proposal for Licensing & Regulatory Regime for India,’ the Aayog proposes licencing and regulatory frameworks as part of a possible action plan to make such digital banks a reality.

Here is what country’s leading Fintech leaders think about implications of this proposal and what it could mean for India’s banking and fintech ecosystem.

Ankit Ratan, Co-founder & CEO, Signzy, a banking automation infrastructure provider said

Ankit Ratan, Co-founder & CEO, Signzy

“India’s think tank, Niti Aayog mooting a proposal on licensing and regulatory framework for full-stack digital banks is a much-needed idea that will help set in place a regime for value-added services and boost account aggregators (AA) to create an efficient system for digital transactions. While on the one hand Account Aggregators will enable free flow of data between financial information providers(FIPs) and banks, on the other they will offer ease of access during loan applications, which will encourage entrepreneurs and businesses to execute their ideas faster. However, as Government, banks, and fintech come together to boost the Digital Bank model, fraud detection, electronic know your customer (e-KYC) that enable fully digital onboarding and analysis of customer’s identity, and anti-money-laundering checks will emerge as a business imperative. At the same time, we will also see no-code applications and APIs that eliminate the need for coding software and allow banks to get to the market sooner will dominate the development of new products as well the entire Digital Banking ecosystem. Amidst this emerging technologies, such as blockchain will also play a critical role with advances, such as reduced counterparty risk, real-time settlement, and improved automation.”

Narayan ‘Naru’ Ramamoorthy, Chief Revenue Officer, Global PayEX, an AI-powered cloud platform for working capital optimization, said

Narayan ‘Naru’ Ramamoorthy, Chief Revenue Officer, Global PayEX

“The intertwining of traditional banking and new-age technology has always acted as a push to the financial ecosystem of the country and the idea of developing full-stack digital banks with no physical branches is the next big move in strengthening the digital economy of the country. With this recommendation from India’s think tank, we see the country operationalizing its own version of Open banking framework. While open banking is revolutionizing banking in developed countries, there are only a few Indian banks that are utilizing its complete potential. With this emerging framework, it will be interesting to watch how Digital Banks in India fill the current digital gap, reduce payment friction, enhance customer experience, accelerate lending decisions, and reduce operational costs. In addition, this recommendation will also provide a thrust to the country’s platform approach towards digital payments. Though UPI is has a drastic growth in the recent past, we are expecting to witness a significant surge in payment modes, such as NACH/ACH, which have grown six times on our platform in the past year. As we go forward, we see a B2B fintech revolution budding in the country, which will help create better solutions for corporates, B2B payments and to bridge the gap in credit penetration for the MSMEs.”

Gurjodhpal Singh, CEO, Tide (IN), a UK-based fintech that launched its operations in India in 2020 said

Gurjodhpal Singh, CEO, Tide (IN)

“We welcome this proposal by Niti Aayog as the need of the hour. It’s not geographical presence, but an agile technical stack and robust security technology that will help redefine banking for the underserved segment, and this idea if brought into action will enable us (fintechs) to take financial services to a larger set of population in a secure and compliant manner. India indeed has a huge scope, potential and appetite for open banking, developing open API platforms will help banking services and benefits reach a larger section of people.”

Dilip Modi, Founder, Spice Money said

Dilip Modi, Founder, Spice Money

“It’s great to see that Niti Aayog has proposed the idea of setting up full-stack ‘digital banks’. Digital operations have gained massive traction over the last few years owing to the increased internet and smartphone penetration in India. The outbreak of the pandemic acted as a catalyst for further digitalisation with several daily activities moving online – be it business operations, jobs, education or banking. There is a dearth of robust banking infrastructure in the rural areas where a major portion of our country resides. The establishment of digital banks will help in bringing this large part of the India’s underserved population to the formal banking sector. This will further help in driving financial inclusion for Bharat that will lead to the growth of our overall economy. India is at the forefront of digital revolution with increased efforts from our government and FinTech firms who are providing customised solutions to create a better customer experience. This is also in line with the PM Jan Dhan Yojana 3.0 that will focus mainly on doorstep banking & digital financial products. As per the scheme, the government aims to ensure availability of banking services to everyone within 5 kms from any residential area. Digital Banks will help to achieve this target and FinTechs can leverage their already existing banking correspondents network to provide banking services to the last mile.”

Arvind Nahata, Co-founder, Decimal Technologies said

Arvind Nahata, Co-founder, Decimal Technologies

“India is becoming a digital-first country where the power of technology is constantly being leveraged to foster financial inclusion. The Niti Aayog’s discussion paper proposing setting up of full-stack digital banks is another major step towards delivering banking services to the farthest corners of the country. As is recognised by the paper, MSMEs are growth and employment generators that remain under-represented in the formal financial system, having to rely on informal, and often exploitative, sources of credit. Given the proposed full-stack digital banks will not rely on physical branches, they will be able to address the credit gap without facing any of the cost or infrastructural issues that is common with traditional banks. The proposal has the potential to disrupt the still largely traditional banking system and bring in innovations that serve the specific needs of MSMEs and SMEs. We are looking forward to seeing how these full-stack digital banks are operationalised and regulated as this step will only further emphasise the position of India as a global fintech leader.”

Anand Kumar Bajaj, Founder, MD & CEO, PayNearby

Anand Kumar Bajaj, Founder, MD & CEO, PayNearby said

“Niti Aayog’s move to set up full-stack ‘Digital Banks’ is directionally a great enabler. Allowing Digital Bank as a new category will help set up a fresh thought process that is end-to-end digital, and where operational efficiencies will help deliver better value to the consumers. Beyond digital-savvy youth, this initiative can help tech-shy Bharat leapfrog to the next level of connectivity and commerce. Leveraging technology, this low-cost, efficient model will help accomplish a lot more in consonance with the existing banking infrastructure.”

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