Banking In Digital World

Online banking (or Internet banking or E-banking) allows customers of a financial institution to conduct financial transactions on a secure website operated by the institution, which can be a retail or virtual bank, credit union or building society. To access online banking, the customer would go to the financial institution’s website, and enter the online banking facility using the customer number and password. Online banking facilities offered by various financial institutions have many features and capabilities in common, but also have some that are application specific.

The common features fall broadly into several categories

A bank branch for the digital age Indian banking system is not going to be the same as the traditional way in fact it has already begun to witness changes in carrying out its business. Today’s banking business is all about innovation and next-generation banking is all about more innovation. Digital in banking is the most convenient way of banking right now as individuals (customers) can transact efficiently without interruption in most convenient manner.

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Using Big Data and Fintech analytics has helped to shift the definition of banking experience for the masses.

As expectation of customers are not same and is dynamic in nature who always demand more for better and continent way of banking and internet connectivity is all that they need, with the advent of new technologies and artificial intelligence capabilities the technology is now capable adding more functions. But digital banking is not what we think, most of us think digital banking is just mobile banking or just online banking which are just add -ons to the existing traditional way of banking as these are too narrow-focused, which fails us to interpret the big picture.

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So Digital banking is merely the use or application of technology in way of banking to ensure smooth processing of banking transaction or operations ensuring maximum utility in terms of experience, cost and reducing error.


In general terms, banking is the business activity of accepting and safeguarding money owned by other individuals and entities and then lending out this money in order to earn a profit. The Banking Act of Kenya defines banking to mean the accepting from members of the public of money on deposit repayable on demand or at the expiry of a fixed period or after notice, the accepting from members of the public of money on current account and payment and acceptance of checks and the employing of money held on deposit or on current account or any part of it by lending, investment or in any other manner for the account and the risk of the person so employing the money. Currently Kenya has 43 licensed commercial banks of these, 31 are locally owned and 12 are foreign owned.

Citibank, Habib Bank, standard chartered and Barclays Bank are among the foreign-owned financial institutions in Kenya. The government of Kenya has a substantial stake in three of Kenya’s commercial banks. The remaining local commercial banks are largely family owned. Commercial banks in Kenya accept deposits from individuals and make a profit by using the deposits to offer loans to businesses at high interest rates. These banks are regulated by the Central Bank Act and the Companies’ Act, which stipulates the activities they should be engaged in, the rules on publishing of financial statements, minimum capital requirements as well as reserve requirements. Examples of new innovations in the Kenyan banks include adoption of ATMs, smart cards, internet and mobile banking as discussed below.

Mobile banking

Mobile banking (m-banking) refers to provision and availment of banking and financial services through the help of mobile telecommunication devices. The scope of offered services may include facilities to conduct bank and stock market transactions, administer accounts and to access customized information. Mobile networks in Kenya offer m-money services in the name of M-pesa by Safaricom, Orange money by Orange, Yu-cash by Essar, and Airtel money by Airtel. Currently the mobile money market size is about 15 million users transferring Kshs. 2 billion daily, of these over 14 million are Mpesa customers. M-money providers have partnered with commercial banks such as Equity Bank, I&M Bank, and Kenya Commercial Bank, Barclays and Co-operative to offer mobile based financial products that aim to reach the unbanked.

Internet banking

Internet banking (e-banking) is the use of internet and telecommunication networks to deliver a wide range of value added products and services to bank customers (Steven, 2002) through the use of a system that allows individuals to perform banking activities at home or from their offices or over the internet. Some online banks are traditional banks which also offer online banking, while others are online only and have no physical presence. Online banking through traditional banks enables customers to perform all routine transactions, such as account transfers, balance inquiries, bill payments, and stop-payment requests, and some even offer online loan applications. Customers can access account information at any time, day or night, and this can be done from anywhere. Internet banking has improved banking efficiency in rendering services to customers. Financial institutions in Kenya cannot ignore information systems since they play an important role in their operations because customers are conscious of technological advancements and demand higher quality services.

India is one of the leading countries in cash transaction as only 13% of people in India are using digital banking which calls for 25% of people using in India, being the fastest moving economy it is expected that the citizens are to be encouraged to make digital transactions rather than handling cash or cash transaction. To counterpart, the handling of cash and cash transaction the government launched an attack called Demonetization though the prime reason was to control corruption and fight back against black money, but somewhere this had apart to enhance digital banking in the country as people post demonetization were forced to make digital transaction. This revolution gave a boon to the banking regulatory as the adoption of new technology and change in user interface helped the banks to book their profits.

Depositing more in their CASA accounts to transact digitally restructured the profitability of the banks whereas reduction in the cost structure has also been impacted that is over 40% of bank establishments costs are related to cash. Banks are earning hype by creating marketing awareness that could pay off them in upcoming years. Every bank in India is being focused on retail banking since it can earn more and this marketing strategy followed by banks suits them best, lastly the level of transparency created by the digital transactions is much more accurate in nature.

Understanding the Digital Revolution: Banks in India adopted technology in late 1980 in order to meet customer expectations and the need for computerized banking was noticed when Indian banks were facing tough competition from foreign banks so in 1992 adoption of technology was must of banks in order to sustain in the economy.

Mentioning about digital banking as explained as a broad term which is use or application of technology in way of banking to ensure smooth processing of banking transactions or operations ensuring maximum utility in terms of experience, cost and reducing error. Earlier the banking transaction costs around 70 -75 whereas ATM costs around 15rs and with the advent of technology the transaction merely costs around 0.8 paisa which is less than a rupee this is due to reduction of human error. Most of the commercial banks have moved towards the adoption of MICR, EFT, NEFT, RTGS, IMPS, UPI, Mobile banking, and mobile wallets.

  • There are many benefits that can be availed through these services such as:
  • Banking service available 24/7 through mobile phone and pcs
  • Smart banking access that eliminated human interface and allows more transparency
  • Clients meeting their needs rather meeting banks


But to understand this deeper there is a need for a clear idea of pros and cons. As digitalization cannot be the solution to the entire problem faced by banks and cash is not that bad for an economy as there must exist a balance of both. This is a good way to eradicate corruption and

depending considerably on the inter-operability of payment system. The digitization comes at a cost that has to be borne by the economy in order to have long term benefits, and this cost is ultimately borne by customers as banks will charge customers for this. To have a look at the impact of it in the rural area the opportunities that banks have right now and ahead are huge as still, more than 50% of population is to be expected to stay in the rural area by 2025. Technology and process becoming easier to perform hence now more than 30% of villagers are opting for digitization in making their utility payments; utility payments in the rural area will leapfrog urban India by 2020 as E-platform is the main reason for adoption.

Although progressing steadily in technology the banking sector has a lot more to face ahead as technology can or must say will be a backdrop for the traditional banking system. Fintech the most revolutionary innovation and adoption of artificial intelligence with big data analytics has made it quite worrying for the banking system as to improve the interface and accessibilities.

Banks are adopting robots to function its utility functions at much faster rate. Till now, most banks were allergic to Fintech, conventionally speaking bank’s human capital serves as a significant aspect of any customer experience. There is a large investment in the Fintech sector by venture capitals to support around 12 billion was invested in 2015 which rose to around 35 – 40 billion in 2018.

The use of blockchain is been used for security reasons. Frequently viewed benefits of Blockchain are its transparency, security and the fact that transactions are logged in the network. Some of the disadvantages currently include the lack of coordination and the scalability of this technology. One of the best -known applications of Blockchain technology at the present time is bitcoin. Transactions in this virtual currency are largely anonymous. This creates ethical risks for financial institutions dealing with users of this currency because they are unable to (fully) verify their identity.

Taking about customer relationship management in banking humans have been always the face of banks for ensuring service and delivering on right time. Banks to ensure customer maintenance started investing in CRM but things have changed as it’s moving towards digital. More than 50% of services by 2012 were taking away by alternatives channels. Now products of banks are no more the value generator for the banks but it’s their customer relationships they maintain by the way of creating experience creating value for banks. In era of digital, there are no more IVR as banks are on its path to digital voice-first society same way as the call centers been replaced by voice -bots. Almost 40% of the voice assist functions are done independently with a platform like LEX but they have to be backed by the right process. It’s important for banks to start working on culture to embrace digital more deeply, the re-thinking strategy is what driving banks in their successful customer relationship management.

To say it all, the Indian economy is a cash-based economy moving towards the path of Digitalization. With the advent of many payment gateways like UPI banks in India have got a lot of opportunities to grow its market as technology and process are becoming easier and making the transaction easier to perform with more transparency and better security.

The study was able to achieve the set objectives; to explore the impact of mobile and internet banking on performance of financial institutions, as well as the extent of use of mobile and internet banking, by surveying a representative sample of financial institutions within Nairobi. The study found that commercial banks had the highest rate of usage of internet banking among the financial institutions sampled. SACCOS are slowly adopting internet banking, while micro finance institutions have not yet adopted internet banking. The study revealed that the most prevalent internet banking services were seeking product rate information and the use of online credit cards. Since its introduction in mid-2005, the adoption of internet banking has been slow due to impaired unavailability of infrastructure and lack of supportive legislation for internet banking (Nyangosi et al 2009).


E-banking, by implications of the built in system complexity, entails new control and safeguards challenges to the bank and also to customers. The major risks are relayed to credit, interest-rate, liquidity, foreign exchange, compliance, strategic, goodwill and transaction. These risks are inter-related and associated with e-banking operations. In addition, web-enabled or internet-based banking has a plethora of inter-connecting issues like identification and credentials of customers, safety of the servers, hacking risk etc. Changing the sequence of banking transactions, web-defacing, social engineering are some of the innovative attacking techniques currently being used as tools of cyber-crime. At present, viable safeguards against this nature of crime are limited.

However the adoption of internet banking has enhanced performance of the banking industry due to increased efficiency, effectiveness and productivity. The study found that mobile banking faces various challenges among them being, system delays by the mobile money transfer service providers, slow processing of transactions especially during the weekends, high transactions costs, limit on the amount of money that can be withdrawn in a day and fraud. These challenges can be solved through regular maintenance of mobile money transfer systems which will help in managing the systems’ capacity and in turn address the problem of transaction delays and improve customer service through speedy support and lower user charges.

There is no doubt that potential for Internet banking in India is immense considering the raising penetration level of the World Wide Web in Indian homes and offices. The Banks has very well adopted the strategy of providing Internet-Banking services. It has tried to familiarize the customer with the services like account information, fund transfer, bill payment, requests and intimation, communication with account manager and other services. The study revealed that the majority of customers are aware about Online Banking and more than 50% of them use it. But, there is a necessity to reach the customers on a wider scale and create awareness about these services. To conclude, the tendency of customers to bank through the ‘Internet Banking’ in the future days could well see virtual banking becoming a reality. Overall the fact remains that given a choice, customer would like to bank via Internet and future years could well see virtual banking become reality.

The study focused on the impact of internet and mobile banking on financial performance of financial institutions in Kenya while its evident its rampant growth impacts on the overall economy as well. Therefore, a study should be conducted to investigate the impact of mobile and internet banking on the economy.The study found that mobile banking has been adopted at a faster rate than internet banking therefore a study needs to be conducted to investigate why this is the case.

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Banking In Digital World. (2019, Dec 16). Retrieved from

Banking In Digital World

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