Prof K S Chandrasekar
vc@clujammu.ac.in
India is poised to be the third-largest economy soon. Bharat is aiming for a $5 trillion economy and expects its services sector to contribute more in this regard. Banking is no exception. If we see the key business drivers across sectors, it is the development in technology with easier accessibility to knowledge and the thrust for globalization. Had there been no recession in the USA, which ensured liquidity of major banks, the banking sector would have grown leaps and bounds by now. The Internet has changed the way business is driven. The competitive landscape has changed in such a way that the focus and target are completely on the customers only. Any developments happening in this industry are based on what the ultimate customer requests and expects. The size of the e-commerce market in India in 2024 was considered to be US$125 billion. It is projected to be US$345 billion by 2030. The growth rate is 15% CAGR. This clearly shows that technology has accentuated the growth rate. As per Meltwater October 2025 statistics, of the 8.25 billion world population, about 5.78 billion have mobile subscriptions. About 6.04 billion have Internet access, which is a whopping 73.2% of the population. The Business Research Company forecasts that the credit cards market size will be about a $930.03 billion market by 2029. In India, 75% of the population between 15 to 34 years are using the Internet. Visitors to e-tailing constitute 50% of this population.
Urbanisation is another aspect that is making banking inevitable. If India does grow rapidly, one would expect about 75% of India’s population to be urbanized by 2050. Urban population in 2050 = 75% of 1.6 billion = 1.2 billion. Urban population today = 28% of 1.4 billion = 392 million. The urban population would increase by 808 million by 2050 (almost 30 million new urban residents a year). This showcases why every bank is trying to find a place in the urban competition. With the advent of technology, anywhere, anytime, anyway customer convenience, online banking, 24/7 service, 365 days branch services, instant comparison of products and services, reduced turnaround time, enriched interactivity through customized services, Automated Teller Machines (ATMs), credit cards, debit cards, Electronic Clearance Service (ECS), mobile banking, National Electronic Fund Transfer (NEFT), payment system indicators, Point of Sale (POS) terminals, and Real Time Gross Settlement (RTGS) have made their presence felt, and there is no need for a customer to visit a branch.
However, as per the January 2024 data, 47% of the population are not connected to the Internet in India. This is a challenge for banks. Digital@2025 mentions that the number will decrease by 2025, as there will be 900 million Indians who will be connected to the Internet. Online banking is touted to be at 19% in rural India, and this is where the opportunity lies.
There is a need to redefine the traditional concepts of banking, including the role of the branch, processes being undertaken, penetration of banking to customers, reducing the distribution costs, ability to leverage customer data, cross- and up-selling services, and ensuring that with the competition, customers do not leave and get poached by competitors. The fear towards private banks has completely changed with Gen Z, who are ready to have multiple banking accounts as compared to Millennials. It is important to attract them through multi-channel mechanisms like m-banking, online banking, call centers, use of AI and chatbots, and through neighborhood agents. The motto of banking needs to be to deliver anytime, anywhere banking, increase service and sales capability of branches, faster response time, quicker transactions through apps, and choosing appropriate technology. As per the Ujjivan SFB annual report, about 189 million households will be in the lower middle and lower income segments, and that will increase as such. Hence, there needs to be not only Jan Dhan but more products and services at a marginal fee so that they utilize all banking services.
As per reports worldwide, there are currently 1.75 billion digital banking accounts, collectively processing about $1.4 trillion annually, which translates to $2.7 million per minute. In the USA, an average of 1,646 physical branches have closed each year since 2018, highlighting the move to digital-first banking. Over 76% of American customers use mobile banking apps. Banks embracing digital transformation see 20%-40% reductions in operating costs, largely through automation, process optimization, and reduced dependency on physical locations. This phenomenon is still on the rise in India, which is a fast acceptor of technology changes. The convenience and accessibility of mobile banking apps make them a preferred choice for many. Digital-only banks, or neo banks, are becoming more prevalent. These financial institutions operate entirely online, offering a range of digital banking services without the need for physical branches, providing a streamlined and cost-effective banking experience. Artificial intelligence is being integrated into digital banking to offer personalized services, such as tailored financial advice and automated customer support.
A neo bank is a 100% digital bank that operates without any physical branches. Unlike traditional banks, neo banks work along with regulated banks to offer core banking services such as savings accounts, current accounts, payments, lending, and expense management, all via mobile apps or web platforms. Neo banks are not required to be licensed by the Reserve Bank of India (RBI) directly. Instead, they function in collaboration with licensed financial institutions to offer regulated banking products while focusing on delivering a superior digital user experience. As per reports, the global neobank market was worth USD 18.6 billion in 2018 and is expected to accelerate at a compounded annual growth rate (CAGR) of around 46.5% between 2019 and 2026, generating around USD 394.6 billion by 2026. Some of the neo banks operating in India are Fi Money, which is designed for salaried millennials; Fi offers smart saving tools, zero-balance accounts, and personalized insights. Jupiter is a lifestyle banking app that focuses on reward-based spending and saving with intuitive UIs. RazorpayX targets startups and SMEs with features like smart payroll, vendor payments, and automated accounting. Niyo provides travel-friendly forex cards and salaried account solutions with global usability.
Open is built for businesses and provides GST invoicing, cash flow management, and expense cards. The Open Credit Enablement Network (OCEN) will be pivotal, turning any digital platform into a loan origination point. Artificial intelligence will enable loan disbursement easily through satellite-based land checking and document verification, which will instantly provide solutions and the credit score. There is a need for a Bharat Index for credit worthiness of an individual so that banks are able to provide what is needed for them individually. It is expected that AI-powered bots will automate up to 80% of back-office tasks, from loan processing to compliance checks, thereby drastically reducing costs and human error.
This efficiency will free up human staff to focus on human-centered, empathy-driven services like loan issues, dispute resolution, and complex personal and family financial advice. Green fixed deposits in alignment with UN SD Goals will be more attractive. Deposits funding solar projects and loans with lower interest rates for MSMEs with strong ESG (Environmental, Social, and Governance) scores, along with carbon tracking, will gain traction. The future of banking will be personal and will talk their language. More consolidation of public and private banks is on the cards to make them more relevant and competitive. As quoted, “Change is inevitable, and innovation is no different,” banking must concentrate on innovations for customers; otherwise, what happened to Kodak, which created the first consumer digital camera but waited for the film market, will happen to banks as well.
( The author is Vice Chancellor, Cluster University of Jammu)
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