Could branchless banking take off in India?

It’s been a tumultuous few months for the banking industry in India. In November 2016, the government launched a demonetization drive to crack down on counterfeiting, corruption and so-called ‘black money’ in the financial system.

All existing 500 and 1,000 rupee banknotes were made invalid overnight. Customers were allowed to exchange their now defunct currency for new 500 and 2,000 rupee notes.

The surprise move had many consequences, including long queues outside bank branches and debate over whether the government had made the right move. Another clear repercussion was a move towards digital transactions, to the benefit of fintechs and payment firms like Paytm, FreeCharge and MobiKwik.

Now, it appears that one of the most significant early developments of this year for the Indian banking industry could be the introduction of branchless banking.

State Bank of India (SBI), the country’s largest lender, is thought to be planning the launch of SBI Digi Bank, a purely digital bank that will use the Aadhar citizen ID system to onboard customers and deliver services online.

An unnamed senior official from the bank told the Economic Times: “We are working on a digital-only bank where no individual will be visible to the customer and all transactions will be done with the help of apps, internet banking and mobile banking. It will be an omnichannel, omni-device digital bank which will be available to both new and existing customers.”

Is this a sign of where the Indian banking sector is heading? Not necessarily. In the state of Bihar in the east of the country, for example, finance minister Abdul Bari Siddiqui has stressed that more branches and ATMs are needed. He said the lack of these physical touchpoints had proven problematic for customers in the wake of last year’s demonetization.

A market as large and complex as India poses plenty of challenges for banks, but it also offers great potential for those providers that are able to tune in to the latest trends and anticipate what customers want.

Written by Jack Dougal