Internet 'killing' physical banking: Govt must ensure laws catch up with tech

The internet has taken over our everyday lives. From stores to schools and universities, and even workplaces, everything is quickly heading the e-way.

Amitabh Kant, CEO of the government think-tank NITI Aayog, predicts that banks will soon go the same way, and that 'physical banking', as it exists now, will be extinct in a few years.

“My view is in the next 5-6 years, you will see the death of physical banks. It will be very difficult for physical banks to survive, because the cost of physical banks will be so enormous. It will be so enormous compared to an online instrument, many of the fintech start-ups, and their ability to do data analysis (and) providing lending,” Kant said at an event.

What Kant is talking about are the technological innovations that will allow internet-based banks (including the physical banks of today as well who adopt new technology) to be more cost- as well as time-effective.

Whenever that happens, it will be smooth transition. With new breakthroughs and improved laws to govern such technology, the physical banks of today would either adopt the new technology, or perish.

But instead of allowing technology to take its own course at its own pace, the Government of India is making an extra effort to impose internet banking on people, without allowing them the much-needed time required to adapt to the new technology.

Online banking being forced upon public

The first major imposition came in the form of demonetisation. From farmers to lawyers, students to housewives, street vendors to carpenters, everyone was forced to stand in never-ending queues for their own money.

That exercise helped just a few e-wallet start-ups to expand their footprint; the government could not make the whole country go cashless.

The reason? Not everybody is comfortable with technology.

Over the past few months, newspapers have been full of stories of people who have become victims of phishing. Many of these victims are educated, modern individuals, which gives a peek into how difficult it would be for the uneducated and the old to live in the era of forced online banking.

This writer himself fell victim to online phishing, ironically while trying to purchase computer protection software from an online platform. And the experience of dealing with the bank was even more harrowing than losing money to fraudsters – simply because there are no rules to help the consumers.

Technology moving faster than laws

The general attitude of banks towards the victims of online fraud seems to be 'transact at your own risk'. Why does this happen? Because technology is moving faster than our laws.

In 2016, when the data of as many as 3.2 million debit cards was compromised, leading to many customers losing money from their bank accounts, it was pointed out by experts that Indian laws did not support consumers in case of banking fraud.

While a few banks had compensated consumers for their loss, many were left helpless.

What should the govt's role be?

Instead of trying to push physical banking out of the country, the government should instead try to evolve a new set of laws that help consumers in case of online fraud. Once consumers feel that their money will be safe in case of an online fraud, and that the law will not leave them in the lurch, there would be a natural adoption of the new technology.

That would enable a smooth, effortless transition to a cashless economy.