Revolutionizing Indian Banking Ecosystem With RBI’s Mandate On Digital Banking Unit (DBU)
In the last budget speech, the finance minister announced setting around 75 digital bank units in 75 districts. Closely following the heels, RBI, on 07th April 2022, released a mandate to set up a Digital Banking Unit(DBU). The circular has come into effect immediately.
What is a DBU?
DBUs, in physical terms, are separate digital outlets to be set up by the banks to offer digital customer journeys that focus on easing customer pain points through digitization and automation. The DBU should be a well-balanced blend of digital automation and human touch. Services must be available in both self-service and assisted modes. However, the scope is much broader than branch banking. It extends mobile, internet, and correspondent-based banking. As of now, the DBU will focus on the retail segment, but banks can take this as an opportunity to provide digital services for SME and corporate customers.
Who has to set up the DBU?
DBUs, in physical terms, are separate digital outlets to be set up by the banks to offer digital customer journeys that focus on easing customer pain points through digitization and automation. The DBU should be a well-balanced blend of digital automation and human touch. Services must be available in both self-service and assisted modes. However, the scope is much broader than branch banking. It extends mobile, internet, and correspondent-based banking. As of now, the DBU will focus on the retail segment, but banks can take this as an opportunity to provide digital services for SME and corporate customers.
What are the services required to be provided under DBU?
- Liability of products and services: Liability of products and services can be described as digital account opening for CASA, recurring and term deposits, card spectrum products and digital payment enablements products such as UPI, POS and BHIM Aadhar.
- Asset products and services: This can be loan origination and disbursal for retail and SME customers, government-sponsored credit schemes etc.
- Digital services: Digital service can be explained as kiosk related self-service and assisted services from a branch perspective.
Other salient aspects of DBU
- DBU units will be separately housed. The front end and API enabled solution can be insourced or outsourced from fintech vendors, while the back end can be shared with the existing core banking solution. Banks can alternatively use digital native solutions to establish DBU.
- Cyber security has to be a key consideration while deploying DBU
- Customer education should be prioritized when providing new self-service functionalities.
- Banks can employ business correspondents or digital facilitators to enable digital services to the customer.
- Bank should have a dedicated senior management team that focuses and manages the digital strategy within DBU.
What does this mean for banks?
Providing a digital journey is no longer a fashion statement, but with the latest mandate from RBI, it has become a regulatory requirement. As per Niti Ayog, RBI may role out pure-play digital bank licenses in the coming years. It is clear that RBI wants all banks to be ready for the digital race to compete with pure digital banks by the time they come into existence. Certain private banks and very few PSU banks have already made good strides in the digital transformation journeys. But it is a wake-up call to stay relevant in the market for a whole lot.
What about neo banks that are already in existence?
Those banks who will not be able to roll out digital services independently can partner with neo banks and provide digital services through a partnership or white labeling of services. So, neo banks will be more relevant in this context.
How does the mandate affect the fintech companies in India?
The mandate is indeed a blessing for fintech service providers in India, as most banks will now look out to enable digital services through the fintech providers. Fintech companies that offer the solution affordably and at scale will be in demand. Solution providers can enable the solution as complete SaaS, which will be a ‘pay as you use’ model that will reduce the burden of banks from a CAPEX perspective.
What do banks need to do now?
Rather than looking at DBUs from a regulatory standpoint, banks need to view this as an opportunity to win the customer’s trust by solving the real-life pain points. Banks can also use this opportunity to start their data journey, which will eventually help them understand their customers accurately and provide personalised products.
One of the key aspects of DBU is to provide customers perfect self-service and assisted customer journey. This can be achieved through FinFlowz Kiosk banking and FinFlowz tablet banking. For self-service through mobile app or kiosk, functionalities like customer onboarding, loan origination, digital wallet can be readily deployed. On assisted model, bank can create a digital branch with FinFlowz solution where relationship manager/teller with help of tablet device can carry out customer services and teller services respectively.
One of the key aspects of DBU is to provide customers perfect self-service and assisted customer journey. This can be achieved through FinFlowz Kiosk banking and FinFlowz tablet banking. For self-service through mobile app or kiosk, functionalities like customer onboarding, loan origination, digital wallet can be readily deployed. On assisted model, bank can create a digital branch with FinFlowz solution where relationship manager/teller with help of tablet device can carry out customer services and teller services respectively.