Changing way of banking

The union budget for 2019-20 among other things has announced proposals to bring certain changes in the ways banking operations are conducted. There are two major announcements made by the finance minister Nirmala Sitharaman in her budget speech, which may witness change in banking practices in near future.

To begin with, public sector banks will be leveraging technology “to further improve ease of living, offering online personal loans and doorstep banking, and enabling customers of one public sector bank to access services across all public sector banks.” This means extending interoperability facility to the account holders. In other words, customer of one public sector bank can walk into any of the public sector banks to operate his/her account and avail any banking service.

Besides, the budget proposal envisages that the government will initiate steps “to empower account holders to remedy the current situation in which they do not have control over deposit of cash by others in their accounts”.

At present, the account holders have no control over who deposits money in their accounts. Besides, they are not required to authenticate transactions in which someone else is depositing money in their accounts. Now, by virtue of the FM’s announcement, such a control in place would possibly require account holders’ authentication to allow money going into their account through such transactions.

Why account holders will be given such a control over the money deposited by someone else in their accounts? Even as the government is not clear in their statement on this proposal, there are different theories put forward by cross section of experts. Some call it a measure to arrest evasion of tax, while some argue it as a safety measure to depositors against money laundering. Notably, money laundering is a major  issue in the country and bank accounts are seen as convenient means of carrying out this activity.

Meanwhile, it would be interesting to see how both the above mentioned proposals are being implemented on ground. Leveraging technology to make these proposals operational in near future would be a something interesting to watch. As far as Interoperability is concerned, all the public sector banks would be required to share their data on a single platform. One of my acquaintances, an IT experts, says that an interface or APIs (application program interface) can also be built so that banks share information to make interoperability a success.

Are the present technology platforms in line with the proposed changes? This is a big question. Of course, there are already certain banking services that are interoperable, like usage of ATMs. A card holder can use his/her card at any ATM of any bank to conduct cash or other transactions. But the scale of proposed change is mega in nature and needs to be flawless. Otherwise, it would create unrest among the account holders as was caused by the 2016-demonetization drive.

Since interoperability facility has emerged as a possible means of change in the way of banking in future, I am reminded of bank account number portability. Some years back, the Reserve Bank of India (RBI) had proposed to facilitate account number portability just like mobile network providers. It had asked banks to accentuate the process as it would improve customer service. The intent as spelt out by the RBI was to support the “prospect of an aggrieved customer silently moving his/her account to another bank.”

Bank account number portability means a customer can move away from one bank to the other by just transferring his bank account number and not having to open a new account altogether in another bank. It is similar to telecom sector where unhappy customers can change their service operator without the need to change their mobile numbers.

Presently, every bank has its own specific method of allocating account numbers. If a customer desires to have an account in some other bank, he/she has to open new account. Opening a new account means complying to the know your customer (KYC) formalities entailing a fair amount of paperwork and a new bank account number. With account number portability, the bank account number will remain the same when the customer moves his/her account to a different branch of the same bank or an altogether different bank.

So far, the progress on  account portability initiative is unheard.

However, the fact remains that banking is undergoing a radical change as far as its operations are concerned. Be it interoperability or account portability proposals, banks have to get ready for huge investment in bringing these services to the doorsteps of their customers. They need to be technologically more advanced to sustain because of growing competition with the digital banks. Besides, they will have to focus more on services and customer satisfaction.

(The views are of the author and not that of the institution he works for)