- Ashutosh Dubey, Senior Lead Business Analytics, Market Innovation

Recently, RBI published the guidelines on the establishment of Digital Banking Units (DBU) in India on 7th April 2022. The idea is very welcoming and seeing the innovation in the space of digital payments, digital KYC, and cashless interactions among users, is a great evolution in the banking space.

In recent times, digital banking has emerged as the preferred banking service delivery channel in the country along with ‘brick and mortar’ banking outlets. Reserve Bank has been taking progressive measures to improve the availability of digital infrastructure for banking services.

DBU is a defined by RBI as follows:

• Fixed point business unit/hub housing minimum digital infrastructure for delivering digital banking products & services.

• Act as servicing existing financial products & services digitally, in both self-service and assisted mode.

• Enable customers to have cost-effective/convenient access and enhanced digital experience to/of such products and services in an efficient, paperless, secured, and connected environment with most services being available in self-service mode at any time throughout the year.

Important considerations for setting up DBU

1. Each DBU will be housed distinctly, with separate entry and exit provisions.

2. They will be separate from an existing Banking Outlet with formats and designs most appropriate for digital banking users.

3. For front-end or distribution layer of digital banking,

a. 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 its own device for digital banking, Video Call/Conferencing facilities, to set up a DBU

b. These facilities can be insourced or outsourced while complying with relevant regulatory guidelines.

4. The back-end can include:

a. Core Banking System and other back-office related information systems for the digital banking products and services can be shared with the incumbent systems with logical separation.

b. 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.

5. 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 into the bank’s core systems backed by a comprehensive risk evaluation and adequate documentation.

6. Minimum Products and Services to be offered by DBUs:

a. Liability Products and services: (i) Account Opening: Saving Bank account under various schemes, Current account, Fixed deposit, and Recurring deposit account; (ii) Digital Kit for customers: Mobile Banking, Internet Banking, Debit Card, Credit card, and mass transit system cards; (iii) Digital Kit for Merchants: UPI QR code, BHIM Aadhaar, POS, etc.

b. Asset Products and services: (i) Making applications for and onboarding customers for identified retail, MSME, or schematic loans. This may also include end-to-end digitalprocessing of such loans, starting from online application to disbursal; (ii) Identified Government sponsored schemes, which are covered under the National Portal.

c. Digital Services:

i. Cash withdrawal and Cash Deposit only through ATM and Cash Deposit Machines respectively - no physical cash acceptance/disbursal across counters

ii. Passbook printing/Statement Generation

iii. Internet Banking Kiosk which may also include facilities to provide all/majority of services available on internet banking including indent and issuance/processing of Cheque Book request, receipt and online processing of various standing instructions of clients

iv. Transfer of funds (NEFT/IMPS support)

v. Updation of KYC/other personal details, etc.

vi. Lodging of grievance digitally and acknowledgement thereof; also tracking of resolution status

vii. Account Opening Kiosk

viii. Kiosk with e-KYC/Video KYC

ix. Digital onboarding of customers for schemes such as Atal Pension Yojana (APY)

x. Insurance onboarding for Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY)

Neobanks, which offer digital banking services, do so in partnership with non-banking financial companies (NBFCs). Neobanks, or digital banks, offer far better digital solutions than conventional banks with online and mobile banking. Despite this, some in the industry have termed these digital banks as "glorified digital distribution companies" given their association with NBFCs and scheduled banks.

If having prior digital banking experience, commercial banks (other than regional rural banks, payment banks, and local area banks) are permitted to open DBUs in tier 1 to tier 6 centres, without requiring RBI permission every time.

How it will impact banking as a service

Banking digital units will help banks reduce their physical footprint with fewer brick and mortar branches, with a 'light' banking approach. Credit will flow better in rural areas as a result of the move. These units can also be cheaper to set up than new branches and can provide a better customer experience.

In addition to providing personalised finance management tools, the units can also be branded as new-age banks. Also, digital banking units require less staff and maintenance, so they are low-cost units for the parent bank. If nothing else, more such units can encourage financial literacy and a positive attitude towards digital banking - which is the need of the hour.