68 Digitisation of banking and other financial services: Internet banking; mobile banking; Digital payments systems

68.1 Concept of Digital Banking

Digital banking is the delivery of banking products and services through electronic channels — internet, mobile, ATMs, POS, kiosks, APIs — that allow customers to transact without physically visiting a branch. India’s digital banking journey took off after the Vasudevan Committee (1999) report on banking technology and accelerated dramatically post-2016 with the launch of UPI, BHIM, eKYC, and Jan Dhan accounts. As of 2024, India accounts for over 45 % of all real-time digital payments globally.

68.2 Drivers of Digital Banking

Drivers — Why Digital?

Driver	Working
Customer convenience	24×7, anywhere/anytime
Cost efficiency	Branch cost ≫ digital cost
Financial inclusion	Reaches unbanked through smartphones
Real-time settlement	RTGS / NEFT / IMPS / UPI
Big-data analytics	Cross-sell, fraud detection
Regulator push	RBI’s payment vision documents

68.3 Channels of Digital Banking

68.3.1 Internet Banking

Started by ICICI Bank in 1996 (first Indian bank to offer net banking). Today: balance enquiry, fund transfer (NEFT/RTGS/IMPS), bill payments, FD opening, e-statements, tax payments, e-commerce, mutual funds, demat. Authentication: 2-FA, OTP, password, certificate, biometric.

68.3.2 Mobile Banking

Three modes: SMS banking, WAP-based, and mobile-app. RBI mobile banking guidelines released 2008. Indian Mobile Banking transactions grew from few crore in 2010 to hundreds of crores per month by 2024.

68.3.3 ATMs / White-Label ATMs

First Indian ATM: HSBC, Mumbai, 1987. White-Label ATMs (WLAs) allowed since 2012 — operated by non-bank entities like Tata Indicash, BTI Vivo, Hitachi Payments.

68.3.4 Cards

Card Ecosystem

Debit cards: linked to bank account; RuPay, Visa, Mastercard.
Credit cards: revolving credit; 30-50 day interest-free.
Prepaid cards / Wallets: PPIs under RBI guidelines.
RuPay: NPCI domestic card network (2012).
Contactless / NFC — wave-and-pay. :ertic ::

68.4 Digital Payments — Indian Landscape

68.4.1 Payment Systems Vision Documents

RBI’s Payment and Settlement Systems Act 2007 + Vision documents (2012, 2018, 2021, 2025) provided the framework. National Payments Corporation of India (NPCI) — set up 2008 as the apex umbrella body.

68.4.2 Major Indian Payment Systems

Indian Payment Systems Snapshot

System	Year	Operator	Working
RTGS	2004	RBI	High-value gross settlement; 24×7 since Dec 2020
NEFT	2005	RBI	Deferred net settlement; 24×7 since Dec 2019
IMPS	2010	NPCI	Immediate fund transfer via mobile
UPI	2016	NPCI	Mobile-app instant transfer using VPA
BHIM	2016	NPCI	UPI consumer app
AePS	2011	NPCI	Aadhaar-enabled, biometric payment
NACH / e-NACH	2016	NPCI	Bulk credit/debit (e.g. salary, EMI)
NETC FASTag	2014	NPCI	RFID toll payment
Bharat Bill Payment System (BBPS)	2017	NPCI	One-stop bill payment
e-RUPI	2021	NPCI	Voucher-based contactless
CTS	2008	NPCI / Banks	Cheque Truncation
CBDC (e₹)	2022	RBI	Sovereign digital currency

68.4.3 UPI — Unified Payments Interface

Launched 11 April 2016 (pilot) and full August 2016. Key features:

UPI Features

Single app to access multiple bank accounts.
24×7 instant fund transfer.
VPA (e.g. name@upi) — no need to share account number/IFSC.
2-FA authentication: device + UPI PIN.
Free for consumers (until 2023; merchant MDR for credit card on UPI now charged).
UPI 2.0 (Aug 2018) — overdraft, mandates, invoice, signed intent QR.
UPI Lite (Sep 2022) — on-device wallet for small-value (≤ ₹500) without PIN.
UPI 123Pay (Mar 2022) — feature-phone UPI via IVR.
UPI on Credit Card (2022) — RuPay credit on UPI.
UPI Linking — cross-border (Singapore PayNow 2023, UAE, France, Sri Lanka, Mauritius, etc.).
October 2024: ₹16 lakh crore monthly volumes on UPI.

68.5 Tokenisation, Open Banking & DPI

Newer Layers

Card tokenisation (2022) — Card on File (CoF); merchants replaced by tokens.
Account Aggregator (AA) — 2021 framework for consent-based data sharing.
Open Network for Digital Commerce (ONDC) — 2022.
DigiLocker — Aadhaar-linked document repository.
eKYC / Aadhaar-based eSign.
India Stack — modular set of open APIs (identity, payments, data, signature).
DPI — Digital Public Infrastructure — India’s flagship export of open digital stack.

68.6 Cybersecurity and Customer Protection

Customer Protection Framework

Two-Factor Authentication (2FA) — mandatory.
Zero-liability — for contributory fraud reported within 3 days (RBI 2017).
Limited liability — within 4-7 days reporting.
RBI Ombudsman Scheme — single Integrated Ombudsman (2021).
Digital Personal Data Protection Act 2023 — privacy framework.
Information Technology Act 2000 — cyber-crime backbone.
DAKSH and CSITE — RBI cyber supervisory frameworks.

68.7 Recent and Emerging Trends

Emerging Trends

Neo-banks — digital-only banks via partnership with licensed bank (RBI doesn’t yet license Neo-banks separately).
Open Banking — APIs.
Banking-as-a-Service (BaaS).
AI & ML in banking — credit scoring, fraud detection, conversational chatbots.
Blockchain in trade finance, KYC, settlement.
Cloud-based core banking.
CBDC (e₹) — wholesale (Nov 2022) and retail (Dec 2022) pilots.
Cross-border instant payments — UPI links abroad.
Digital Banking Units (DBUs) — 75 launched in 2022.
Regulatory Sandboxes (RBI / SEBI / IRDAI / IFSCA).

flowchart TB
  D[Digitisation of Banking] --> N[Net Banking<br/>1996 ICICI]
  D --> M[Mobile Banking<br/>2008 RBI guidelines]
  D --> P[Payment Systems<br/>UPI · IMPS · RTGS · NEFT]
  D --> S[India Stack<br/>Aadhaar · AA · ONDC · DigiLocker]
  D --> E[Emerging<br/>Neo-banks · CBDC · BaaS · AI]
    classDef default fill:#003366,color:#ffffff,stroke:#ffcc00,stroke-width:3px,rx:10px,ry:10px;

Distractor warning

PYQ trap: UPI launched 2016 (NPCI); RTGS — RBI; NPCI set up 2008. First Indian ATM 1987 HSBC Mumbai. e₹ Retail pilot Dec 2022.

68.8 Practice Questions

Q 01UPIEasy

UPI is operated by:

ARBI
BNPCI
CSBI
DSEBI

View solution

Correct Option: B

**NPCI** — National Payments Corporation of India (2008).

Q 02RTGSEasy

RTGS in India is operated by:

ANPCI
BSEBI
CRBI
DCCIL

View solution

Correct Option: C

**RTGS — RBI** (Real-Time Gross Settlement, since 2004).

Q 03UPI launchMedium

UPI was launched in:

A2014
B2016
C2018
D2020

View solution

Correct Option: B

**April 2016 pilot; Aug 2016 full launch**.

Q 04NEFTMedium

NEFT became 24×7 since:

ADec 2019
BDec 2020
CJan 2021
DApr 2022

View solution

Correct Option: A

**NEFT 24×7 — 16 Dec 2019**; RTGS 24×7 — Dec 2020.

Q 05First ATMHard

India's first ATM (1987) was set up in Mumbai by:

ASBI
BICICI
CHSBC
DCitibank

View solution

Correct Option: C

**HSBC Mumbai 1987**.

Q 06Internet bankingHard

First Indian bank to offer internet banking:

ASBI
BICICI Bank (1996)
CHDFC Bank
DPNB

View solution

Correct Option: B

**ICICI 1996**.

Q 07NPCIMedium

NPCI was set up in:

A2005
B2008
C2012
D2016

View solution

Correct Option: B

**NPCI 2008** under Payment and Settlement Systems Act 2007.

Q 08WLAHard

White-Label ATMs were allowed by RBI since:

A2008
B2012
C2015
D2018

View solution

Correct Option: B

**WLA — 2012**; Tata Indicash was first.

Q 09e₹Medium

RBI launched retail CBDC (e₹) pilot in:

ANov 2022
BDec 2022
CApr 2023
DJan 2024

View solution

Correct Option: B

Wholesale Nov 2022; **Retail Dec 2022**.

Q 10BBPSMedium

BBPS — Bharat Bill Payment System — operated by:

ARBI
BNPCI
CBharat Bill Payment Central Unit (NBBL — NPCI subsidiary)
DCCIL

View solution

Correct Option: C

**NBBL (NPCI subsidiary)** — operates BBPS since 2017.

Q 11FASTagMedium

FASTag uses:

AMagnetic stripe
BRFID
CQR code
DNFC

View solution

Correct Option: B

**FASTag — RFID** sticker; NPCI/IHMCL since 2014.

Q 12AePSHard

AePS authentication uses:

APassword
BPIN
CAadhaar biometric (fingerprint / iris)
DOTP only

View solution

Correct Option: C

**Aadhaar biometric** — designed for BCs in rural areas.

Q 13UPI LiteMedium

UPI Lite uses an on-device wallet without PIN for transactions up to:

A₹100
B₹200
C₹500
D₹2,000

View solution

Correct Option: C

UPI Lite for **per-transaction ≤ ₹500** (original limit).

Q 14123PayHard

UPI 123Pay is targeted at:

ASmartphone users
BFeature-phone users (no internet)
CNRI users
DCorporate users only

View solution

Correct Option: B

**Feature-phone UPI via IVR / missed call** — Mar 2022.

Q 15PSS ActHard

Payment and Settlement Systems Act was enacted in:

A2002
B2005
C2007
D2012

View solution

Correct Option: C

**PSS Act 2007** — empowers RBI to regulate payment systems.

Q 16e-RUPIMedium

e-RUPI is a:

ACrypto-currency
BVoucher-based cashless payment
CBank account number
DWallet card

View solution

Correct Option: B

**e-RUPI 2021** — prepaid voucher (QR / SMS) for targeted welfare.

Q 17VasudevanHard

Vasudevan Committee (1999) report related to:

ABanking technology / IT upgradation
BInsurance
CPension
DStock market

View solution

Correct Option: A

**Banking technology upgradation** — laid out IT vision.

Q 18RuPayMedium

RuPay is:

AIndian domestic card network by NPCI
BRBI digital currency
CCryptocurrency
DCrypto wallet

View solution

Correct Option: A

**RuPay (2012)** — NPCI; rival to Visa/Mastercard.

Q 19DBUHard

How many Digital Banking Units (DBUs) were launched in 2022?

A50
B75
C100
D150

View solution

Correct Option: B

**75 DBUs** to mark 75 yrs of Independence.

Q 20MatchMedium

Match each service with operator:

	Service		Operator
(i)	RTGS	(a)	NPCI
(ii)	UPI	(b)	RBI
(iii)	e₹ (CBDC)	(c)	RBI
(iv)	BBPS	(d)	NBBL (NPCI subsidiary)

A(i)-(b), (ii)-(a), (iii)-(c), (iv)-(d)
B(i)-(a), (ii)-(b), (iii)-(d), (iv)-(c)
C(i)-(c), (ii)-(d), (iii)-(b), (iv)-(a)
D(i)-(d), (ii)-(c), (iii)-(b), (iv)-(a)

View solution

Correct Option: A

RTGS-RBI; UPI-NPCI; e₹-RBI; BBPS-NBBL.

68.9 Quick Recall

Quick recall

Net banking pioneers: ICICI Bank 1996; first ATM HSBC Mumbai 1987; WLA 2012.
NPCI 2008; PSS Act 2007.
Payment systems: RTGS 2004 (RBI), NEFT 2005 (RBI, 24×7 from Dec 2019), IMPS 2010 (NPCI), UPI 2016 (NPCI), AePS 2011, BBPS 2017, e-RUPI 2021, CBDC e₹ Dec 2022 retail.
UPI variants: UPI 2.0 (2018), 123Pay (2022), Lite (2022), Credit on UPI (2022), cross-border links.
India Stack: Aadhaar, eKYC, eSign, DigiLocker, AA, ONDC.
Customer protection: 2FA, zero-liability (3 days), Integrated Ombudsman 2021, DPDP Act 2023.
Emerging: Neo-banks, BaaS, DBUs (75 in 2022), regulatory sandboxes.