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Niti Aayog Bats For Full Stack Digital Banks, Expert Reacts

“In other words, these entities will issue deposits, make loans and offer the full suite of services that the Banking Regulation Act empowers them to. As the name suggests, however, DBs will principally rely on the Internet and other proximate channels to offer their services,” it said in a discussion paper.

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Niti Aayog, an public policy think tank, under Prime Minister Narendra Modi led Central Government on Wednesday proposed setting up of full-stack ‘digital banks’, which would principally rely on the Internet and other proximate channels to offer their services and not physical branches, to mitigate the financial deepening challenges being faced in the country.

“In other words, these entities will issue deposits, make loans and offer the full suite of services that the Banking Regulation Act empowers them to. As the name suggests, however, DBs will principally rely on the Internet and other proximate channels to offer their services,” it said in a discussion paper.

Following Niti Aayog floating an idea on digital banking, Fintech leaders from Tide India, Signzy, Spice Money, PayNearby and Decimal have commented on the implications of this proposal and what it could mean for India’s banking and fintech ecosystem. 

“India is becoming a digital-first country where the power of technology is constantly being leveraged to foster financial inclusion. The Niti Aayog’s discussion paper proposing setting up of full-stack digital banks is another major step towards delivering banking services to the farthest corners of the country. As is recognised by the paper, MSMEs are growth and employment generators that remain under-represented in the formal financial system, having to rely on informal, and often exploitative, sources of credit. Given the proposed full-stack digital banks will not rely on physical branches, they will be able to address the credit gap without facing any of the cost of infrastructural issues that are common with traditional banks. The proposal has the potential to disrupt the still largely traditional banking system and bring in innovations that serve the specific needs of MSMEs and SMEs. We are looking forward to seeing how these full-stack digital banks are operationalised and regulated as this step will only further emphasise the position of India as a global fintech leader,” said the Co-founder of Decimal Technologies, Arvind Nahata. 

“It’s great to see that Niti Aayog has proposed the idea of setting up full-stack 'digital banks'. Digital operations have gained massive traction over the last few years owing to the increased internet and smartphone penetration in India. The outbreak of the pandemic acted as a catalyst for further digitalisation with several daily activities moving online - be it business operations, jobs, education or banking. There is a dearth of robust banking infrastructure in the rural areas where a major portion of our country resides. The establishment of digital banks will help in bringing this large part of India’s underserved population to the formal banking sector. This will further help in driving financial inclusion for Bharat that will lead to the growth of our overall economy. India is at the forefront of the digital revolution with increased efforts from our government and FinTech firms who are providing customised solutions to create a better customer experience. This is also in line with the PM Jan Dhan Yojana 3.0 that will focus mainly on doorstep banking and digital financial products. As per the scheme, the government aims to ensure the availability of banking services to everyone within 5 KM from any residential area. Digital Banks will help to achieve this target and FinTechs can leverage their already existing banking correspondent network to provide banking services to the last mile," said Founder of Spice Money Dilip Modi. 

“We welcome this proposal by Niti Aayog as the need of the hour. It's not a geographical presence, but an agile technical stack and robust security technology that will help redefine banking for the underserved segment, and this idea if brought into action will enable us (fintechs) to take financial services to a larger set of the population in a secure and compliant manner. India indeed has a huge scope, potential and appetite for open banking, developing open API platforms will help banking services and benefits reach a larger section of people," said CEO of Tide India Gurjodhpal Singh. 

“India’s think tank, Niti Aayog mooting a proposal on licensing and regulatory framework for full-stack digital banks is a much-needed idea that will help set in place a regime for value-added services and boost account aggregators (AA) to create an efficient system for digital transactions. While on the one hand Account Aggregators will enable free flow of data between financial information providers(FIPs) and banks, on the other they will offer ease of access during loan applications, which will encourage entrepreneurs and businesses to execute their ideas faster. However, as Government, banks, and fintech come together to boost the Digital Bank model, fraud detection, electronic know your customer (e-KYC) that enable fully digital onboarding and analysis of customer’s identity, and anti-money-laundering checks will emerge as a business imperative. At the same time, we will also see no-code applications and APIs that eliminate the need for coding software and allow banks to get to the market sooner will dominate the development of new products as well the entire Digital Banking ecosystem. Amidst this emerging technology, such as blockchain will also play a critical role with advances, such as reduced counterparty risk, real-time settlement, and improved automation," said Co-founder and CEO of Signzy, Ankit Ratan.

“Niti Aayog’s move to set up full-stack ‘Digital Banks’ is a great enabler. Allowing Digital Bank as a new category will help set up a fresh thought process that is end-to-end digital, and where operational efficiencies will help deliver better value to the consumers. Beyond digital-savvy youth, this initiative can help tech-shy Bharat leapfrog to the next level of connectivity and commerce. Leveraging technology, this low-cost, efficient model will help accomplish a lot more in consonance with the existing banking infrastructure,” said the Founder, MD, CEO of PayNearby Anand Kumar Bajaj. 

"A full-stack ‘Digital Banks’ is a big leap toward re-inventing our banking ecosystem by tearing down barriers and entering and availing new growth areas, besides accelerating the national agenda of ‘financial inclusion. I believe this will primarily help overcome infrastructural hurdles in offering new age banking solutions and extending these services to rural and semi-urban areas. Additionally, it will empower the ecosystem to roll out new and unique services quickly and efficiently while riding on new-age digital modules such as UPI, IMPS, BBPS, AEPS among others. This policy design is valuable in the context of building a new improved digital infrastructure to address the key needs in areas of customer acquisition, engagement, and retention while opening new revenue streams for the sector. These indexes demonstrate that India has the technological infrastructure in place to appropriately support DBs. Building a roadmap for a digital banking regulatory framework and policy would help India cement its standing as the global fintech champion soon," said Vice-Chairman and MD, Sarvatra Technologies, Mandar Agashe.

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