Digital Banking and Challenges before Urban Cooperative Banks

In India, out of the1574 Urban Cooperative Banks (UCB’s) around 38% do not have Core Banking Solution (CBS). Most of the UCB’s are offering electronic fund transfer services like NEFT and RTGS in tie up with sponsor commercial banks. For customers of most of the cooperative segment, ‘branch banking’ was the only banking channel to bank upon, till recently. And they are serving nearly 60 crore customers.

Digital banking is now gaining momentum up with UCBs being allowed to issue debit cards, credit cards, deploy ATM, open branches and expand the e-services. However, most of the UCB’s are yet to obtain permission/license for Internet and mobile banking; there are several other challenges that UCB’s confront to go digital.

First is the budget constraint i.e., CAPEX required to procure hardware and software. Though some of the UCBs have their own data centre, deploying the CBS and digital channel solutions in a hosted data centre makes more economic sense for the UCBs. The in-house IT teams of UCBs may not have the capabilities to device suitable IT security policies and practices to drive the digital channels safely.

Poor penetration of desktop (PC)/laptop and smart phones is a roadblock for the mass adaption of digital channels. This is more so with the customer segment that UCB’s catering. NPCI has addressed this challenge to a certain extent by providing “#99” mobile banking services on feature phones. With the cost of lower end smart phone moving downwards, we will see more and more people adopting mobile banking.

‘Customer-education’ is also key for real volumes in digital channels to grow. There exists a knowledge gap in understanding technology and digital channels even among the bank staff. Yet another challenge is the economy of scale that UCBs lack, compared to big brother commercial banks. UCBs have a smaller number of branches and clientele as a result ROI on CAPEX is much lower compared to commercial banks. Probably shared resources in a hosted model will provide better ROI and transaction cost, till such time consolidation/merger of UCB’s sets in.

Integration of digital channel solutions by the CBS solution provider who also provides a hosted data centre can address majority of the challenges and provide a bright spot for UCB’s. Further, UPI and BHIM payments app based on mobile number and VPA provides option to use bank account of any bank. Going forward Bharat QR also provides option for cost efficient payment solution using VPA, Aadhaar and IFSC with account number, using mobile camera to make digital payments. The time is ripe for UCB’s to gear up and exhilarate digital channel adaption to remain relevant in digital banking arena. In such a scenario, UCBs can explore ‘out of the box’ banking solutions from partners like Robosoft, enabling them to create customized mobile apps the easy way. It is a win-win for both customers and banks as such a solution delivers great user experience for the former and makes business sense for the latter.