Evolution of Banking From Ledger to Solution to Digital and Beyond

As banks have moved from ledger-based accounting to core banking solutions, and from there to channel solutions and digital solutions, their business has undergone much modernization and innovation. Banking has changed from a bank staff-assisted model to self-service, where transactions might or might not be authenticated by bank staff. The emerging digital technologies will pave the way for further disruption of conventional banking models that have prevailed for long. From a bank’s perspective, this will add to customer delight by enabling a unique experience for users. Providing accessible and convenient banking services to customers through digital solutions, such as internet and mobility, calls for rapid innovation and expansion in banking technology platforms. At the same time, it also calls for some effort from customers, especially the ones who are not technology-savvy, to adapt to these changes.  

Just as core banking solutions, channels, ATMs, and mobile solutions – which are quite evolved now – offered first mover advantage to early adopters, so will be the newly emerging digital products and solutions.  Digital transformation will become a source of value differentiation for banks, and possibly polarize customers depending on their preference for fully digital, partly digital or “non digital” banking. The clearing and cheque services that have existed since the dawn of banking will remain only in those banks that have partially or not at all digitalized. The clearing centre will be serviced specifically for non- digitized documents considering the viability and profitability of this model. The arrival of e-cheques and settlement over digital platforms will possibly simplify clearing models enabling faster processing. Likewise, paper documents used for account opening, vouchers, advices, signature cards, etc. will turn digital. The risk elements of digital signature will be evaluated for conversion to purely digital form and suitable solutions will evolve. Internal bank processes will simplify through digitalization, as workflows and approvals in multiple modes emerge without increasing risk or compromising security.

While the operations and liability portfolios along with their document workflows are being digitalized, banks are still working on the documentation and approval aspects of the lending portfolio in both retail and corporate businesses. With mobiles providing imaging and scanning facilities, routing documents for approval from the relevant authorities (government in the case of PAN, Aadhaar, and passport, or employers in the case of salary and income certificate, or the CKYC repository for KYC) through mobile, can help in digitalizing banks’ lending platforms. There is a case to set up centralized machinery or a digital platform, similar to credit bureaus in many parts of the world,  to approve all documents. In the case of trade and investment banking portfolios also, introduction of centralized digital platforms with validation and approval capabilities will help reduce the use of paper.

Digitalization will not only ensure transparency in reporting of bad accounts but also improve maintenance of books and records on the customer side. This will improve the overall health of the financial and banking ecosystem.

To conclude, the interim phases of transformation to digital banking will pose challenges to both customers and banks. Until digital banking attains maturity, banks might have to live through multiple models and processes. At the same time let us remember that banking is highly dynamic and it is only a matter of time before the next generation of banking beyond digital emerges to further disrupt and challenge the  banking rules, codes and practices of the time. Customers will lead this change and banks must learn to adapt to them. IT vendors and platform providers will play a critical role in bridging the needs of customers and the ability of their banks to provide relevant solutions.