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A STUDY OF LATEST TRENDS IN THE INDIAN BANKING AND FINANCIAL

SYSTEM

Conference Paper · May 2022

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 International Journal of Multidisciplinary Research and Technology
ISSN 2582-7359
Peer Reviewed Journal (Impact Factor 6.328)

A STUDY OF LATEST TRENDS IN THE INDIAN BANKING AND

FINANCIAL SYSTEM
Mr. Nimesh Punjani,
Asst. Professor, Lala Lajpatrai College of Commerec & Economics, Mahalaxmi, Mumbai.

Abstract:
Banking and Financial system forms an integral part of the economy of any country. Smooth functioning of the banking
and financial system plays an important role in the growth of the country’s economy. In recent days the digital technology
plays a very important role in the functioning of these sectors.

In the recent years banks and financial institutions have been depended more on digital banking and have transformed
there digital banking system by investing capital and resources into innovating work force, data, advanced analytics, etc.,

Keywords: RBI, Digitization, Block Chain, AI, Fintech, UPI.

Introduction:
Money plays an important role in day to day life. Evolution of money had been from coins to paper
currency to credit cards to UPI to Block chain. Newer trends of transactions are gaining at a rapid pace
as the customer finds it easy and convenient due to the flexibility of time. The introduction of the
technology in the banking industry had made various technological advancements in the system. Internet
banking, Mobile banking and introduction of Fintech companies are some examples of the shift from
traditional banking system to technological banking system.
In this paper we are going to talk about the recent trends that are used in the banking and financial sector
which makes the sector more effective.
Digitization
With the rapid growth of technology, digital services became an indispensable part of banking
operations as these institutions needed to keep up with the changes and introduce innovations that made
services convenient. In India, the initial phase of digitization began in the 1980s when information
technology was used to perform basic functions like customer service, bookkeeping, etc. Gradually core
banking solutions were also adopted to improve customer experience. The main shift came during the
1990s when liberalization opened the Indian market to the global world. Private and international banks
which came into operation boosted technological changes in the banking sector. Features like online
banking, IMPS (Immediate Payment Service), RTGS (Real Time Gross Settlement), telebanking
enabled customers to avail banking facilities from anywhere.

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 International Journal of Multidisciplinary Research and Technology
ISSN 2582-7359
Peer Reviewed Journal (Impact Factor 6.328)
Mobile banking
Mobile banking is a service provided by the bank which helps the customer of the bank to make
financial transactions using mobile phone, tablet, etc. Mobile banking helps the user to bank anywhere at
any time. Mobile banking is more secure than internet banking. Mobile banking can be conducted only
from one specific device (smartphone or tablet) which has a SIM card, the phone number of which is
already registered with the bank account. A hacker needs to install logging software to steal the
username and password of the person for creating a fraud using internet banking while in case of mobile
banking the mobile phone with the registered sim card has to be stolen by the fraudster which makes it
difficult for the fraudster to make a fraud. Hence mobile banking is safe compared to internet banking. A
bigger challenge for the Banks is to offer a mobile banking solution on any type of mobile device.
Various services can be availed using mobile banking like access to statement, opening and tracking
fixed deposit, transferring of funds, other banking services, etc.,
Blockchain
Blockchain is a robust technology that is still in the development phase. Security is a major factor as far
as digital services are concerned. Despite technical advances, fraud practices are still a challenge in the
digital domain. Blockchain is the answer to these challenges. The technology works on computer
science, data structures and cryptography.
Blockchain, is also referred as Distributed Ledger Technology (DLT), makes the history of any digital
asset unalterable and transparent through the use of decentralization and cryptographic hashing. A
simple analogy for understanding blockchain technology is a Google Doc. When we create a document
and share it with a group of people, the document is distributed instead of copied or transferred. This
creates a decentralized distribution chain that gives everyone access to the document at the same time.
No one is locked out awaiting changes from another party, while all modifications to the doc are being
recorded in real-time, making changes completely transparent. Of course, blockchain is more
complicated than a Google Doc. Blockchain is a revolutionary and promising technology as it reduces
the risk, brings transparency by stamping out the fraud. Blockchain consists of 3 important concepts viz:
blocks, nodes and miners.
Blocks - Every chain consists of multiple blocks and each block has three basic elements:
 The data in the block.
 A 32-bit whole number called a nonce. The nonce is randomly generated when a block is created,
which then generates a block header hash.
 The hash is a 256-bit number wedded to the nonce. It must start with a huge number of zeroes (i.e.,
be extremely small).
When the first block of a chain is created, a nonce generates the cryptographic hash. The data in
the block is considered signed and forever tied to the nonce and hash unless it is mined.

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 International Journal of Multidisciplinary Research and Technology
ISSN 2582-7359
Peer Reviewed Journal (Impact Factor 6.328)
Miners - Miners create new blocks on the chain through a process called mining. In a blockchain every
block has its own unique nonce and hash, but also references the hash of the previous block in the chain,
so mining a block isn't easy, especially on large chains.
Miners use special software to solve the incredibly complex math problem of finding a nonce that
generates an accepted hash. Because the nonce is only 32 bits and the hash is 256, there are roughly four
billion possible nonce-hash combinations that must be mined before the right one is found. When that
happens miners are said to have found the "golden nonce" and their block is added to the
chain. Making a change to any block earlier in the chain requires re-mining not just the block with the
change, but all of the blocks that come after. This is why it's extremely difficult to manipulate
blockchain technology. Think of it as "safety in math" since finding golden nonces requires an enormous
amount of time and computing power. When a block is successfully mined, the change is accepted by all
of the nodes on the network and the miner is rewarded financially.
Nodes - One of the most important concepts in blockchain technology is decentralization. None of the
computer or organization can own the chain. Instead, it is a distributed ledger via the nodes connected to
the chain. Nodes can be any kind of electronic device that maintains copies of the blockchain and keeps
the network functioning. Every node has its own copy of the blockchain and the network must
algorithmically approve any newly mined block for the chain to be updated, trusted and verified. Since
blockchains are transparent, every action in the ledger can be easily checked and viewed. Each
participant is given a unique alphanumeric identification number that shows their transactions.
Combining public information with a system of checks-and-balances helps the blockchain maintain
integrity and creates trust among users. Essentially, blockchains can be thought of as the scalability of
trust via technology.
Unified Payment Interface (UPI)
UPI is a trend that emerged in the last couple of years and it is revolutionizing the way we pay and
receive money. Transactions can be done within seconds using this interface. Goggle Pay, PhonePay,
Paytm, UPI apps of leading nationalized and private banks, BHIM (Government of India) are the major
interfaces among numerous other services that enable easy payment even if you are out of physical cash.
Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile
application (of any participating bank), merging several banking features, seamless fund routing &
merchant payments into one hood. It also caters to the “Peer to Peer” collect request which can be
scheduled and paid as per requirement and convenience. With the above context in mind, NPCI
conducted a pilot launch with 21 member banks. The pilot launch was on 11th April 2016 by Dr.
Raghuram G Rajan, Governor, RBI at Mumbai. Banks have started to upload their UPI enabled Apps on
Google Play store from 25th August, 2016 onwards.
Uniqueness of UPI:
Immediate money transfer through mobile device round the clock 24*7 and 365 days. Single mobile
application for accessing different bank accounts. Single Click 2 Factor Authentication – Aligned with
the Regulatory guidelines, yet provides for a very strong feature of seamless single click payment.
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 International Journal of Multidisciplinary Research and Technology
ISSN 2582-7359
Peer Reviewed Journal (Impact Factor 6.328)
Virtual address of the customer for Pull & Push provides for incremental security with the customer not
required to enter the details such as Card no, Account number; IFSC etc., QR Code. Merchant Payment
with Single Application or In-App Payments. Raising Complaint from Mobile App directly.
Participants in UPI:
Payer PSP, Payee PSP, Remitter Bank, Beneficiary Bank, NPCI, Bank Account holders,
Merchants
Benefits of UPI to the ecosystem participants:
Banks - Single click Two Factor authentication, Universal Application for transaction, Leveraging
existing infrastructure, Safer, Secured and Innovative, Payment basis Single/ Unique Identifier, Enable
seamless merchant transactions
Merchants - Seamless fund collection from customers - single identifiers, No risk of storing customer’s
virtual address like in Cards, Tap customers not having credit/debit cards, Suitable for e-Com & m-Com
transaction, Resolves the COD collection problem, IAP.
Customers - Round the clock availability, Single Application for accessing different bank accounts, Use
of Virtual ID which is more secure, no credential sharing, Single click authentication, Raising Complaint
from Mobile App directly
Artificial Intelligence (AI) Robots
Artificial Intelligence (AI) has been around for a long time. AI was first conceptualized in 1955 as a
branch of Computer Science and focused on the science of making “intelligent machines” machines that
could mimic the cognitive abilities of the human mind, such as learning and problem-solving. AI is
expected to have a disruptive effect on most industry sectors, many-fold compared to what the internet
did over the last couple of decades. Organizations and governments around the world are diverting
billions of dollars to fund research and pilot programs of applications of AI in solving real-world
problems that current technology is not capable of addressing. Artificial Intelligence enables banks to
manage record-level high-speed data to receive valuable insights. Moreover, features such as digital
payments, AI bots, and biometric fraud detection systems further lead to high-quality services for a
broader customer base. Artificial Intelligence comprises a broad set of technologies, including, but are
not limited to, Machine Learning, Natural Language Processing, Expert Systems, Vision, Speech,
Planning, Robotics, etc. The adoption of AI in different enterprises has increased due to the COVID-19
pandemic. Since the pandemic hit the world, the potential value of AI has grown significantly. The focus
of AI adoption is restricted to improving the efficiency of operations or the effectiveness of operations.
However, AI is becoming increasingly important as organizations automate their day-to-day operations
and understand the COVID-19 affected datasets. It can be leveraged to improve the stakeholder
experience as well.

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 International Journal of Multidisciplinary Research and Technology
ISSN 2582-7359
Peer Reviewed Journal (Impact Factor 6.328)
Some important applications of AI:
 Customer service/engagement (Chatbot)
Chatbots deliver a very high ROI in cost savings, making them one of the most
commonly used applications of AI across industries. Chatbots can effectively
tackle most commonly accessed tasks, such as balance inquiry, accessing mini
statements, fund transfers, etc. This helps reduce the load from other channels
such as contact centres, internet banking, etc.
 Robo Advice
Automated advice is one of the most controversial topics in the financial services space. A robo-advisor
attempts to understand a customer’s financial health by analyzing data shared by them, as well as their
financial history. Based on this analysis and goals set by the client, the robo-advisor will be able to give
appropriate investment recommendations in a particular product class, even as specific as a specific
product or equity.
 General Purpose / Predictive Analytics
One of AI’s most common use cases includes general-purpose semantic and natural language
applications and broadly applied predictive analytics. AI can detect specific patterns and correlations in
the data, which legacy technology could not previously detect. These patterns could indicate untapped
sales opportunities, cross-sell opportunities, or even metrics around operational data, leading to a direct
revenue impact.
 Cybersecurity
AI can significantly improve the effectiveness of cybersecurity systems by leveraging data from
previous threats and learning the patterns and indicators that might seem unrelated to predict and prevent
attacks. In addition to preventing external threats, AI can also monitor internal threats or breaches and
suggest corrective actions, resulting in the prevention of data theft or abuse.
 Credit Scoring / Direct Lending
AI is instrumental in helping alternate lenders determine the creditworthiness of clients by analyzing
data from a wide range of traditional and non-traditional data sources. This helps lenders develop
innovative lending systems backed by a robust credit scoring model, even for those individuals or
entities with limited credit history.
Fintech Companies
Fintech or financial technology is indeed a disrupting force in the sector. Due to the changing landscapes
in the Indian financial sector, many companies have emerged to be a significant part of this ecosystem.
Fintech companies specialize in developing technology solutions that help companies to manage the
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 International Journal of Multidisciplinary Research and Technology
ISSN 2582-7359
Peer Reviewed Journal (Impact Factor 6.328)
financial aspects of their business, like new software’s, applications, processes as well as business
models. Investments made on Fintech companies have increased drastically in the past decade making it
a multi-billion dollar industry globally. In 2021, banks accelerated their digital banking transformation
efforts by investing their capital and resources into data and advanced analytics, and innovation and
reimagining a new workforce. In response to the pandemic, banks and Fintech’s have been busy re-
assessing their operations and strategies so that they can reach out to customers in better and cost
effective ways. These steps are resolving the regional banking barriers between urban and rural areas
across the country.
Most likely trends that will be adopted by the banking and Fintech companies in the near future are
Hyper personalization, New core banking platforms, Open Banking, Banking-as-a-Services (BaaS),
Embedded Finance
Digital-only Banks
Digital-only banks operate only through IT platforms which can be accessed using mobile phones,
laptops or tablets. Digital-only banks operate in a paperless and branchless model and seem to overtake
the traditional system of banks in the future. These banks provide high-speed banking facility at a low
transaction charge. These virtual banks are an ideal choice for the current fast-paced world.
Conclusion:
With the increasing dependency on smart phones and internet, digitalization of banking sector is
inevitable to catch up the increasing expectations of the world. Digitalization reduces the dependency on
humans for the day to day routine banking transactions. It increases the convenience which makes the
businesses to be independent in the operation timings. Paying utility bills and making insurance policies
premium payment can be automated using the various options available in digital banking. Mobile
recharging, payment making for Ola, Uber has also become easy using the digital banking. Digital
payment system has also transformed the railway ticket booking system. Anytime and anywhere
banking is possible due to the digital banking. The various options available in digital banking makes the
life of a consumer easy. But as every good thing comes with a cost, the common man is still not very
well versed with the security features of digital banking which instigate the fraudsters to create the fraud
and cheat the common man by stealing there hard earned money. Mobile connectivity and internet
connectivity plays a very vital role for the success in the digital banking. Rapid increase in the use of
digital banking will also reduce the dependence of the bank staff creating a risk for the employability in
the banking sector.

51 E - National Conference on Emerging Trends in Banking Industry

 International Journal of Multidisciplinary Research and Technology
ISSN 2582-7359
Peer Reviewed Journal (Impact Factor 6.328)
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