The chronological progress of technology in banking reveals a profound transformation from traditional, manual systems to highly digital and automated infrastructures. The evolution of banking technology can be categorized across several stages, each marked by significant milestones that have enhanced efficiency, security, customer experience, and financial inclusion. This transformation has also revolutionized the payment and settlement systems in India and globally, enabling faster, more secure, and more accessible financial transactions.
Stage 1: Manual Banking (Pre-1980s)
Before the advent of computers, banking operations were entirely manual. Customer records were maintained in ledgers, and every transaction required physical paperwork and human verification. The process was time-consuming, prone to errors, and limited in scalability. The only way to access services was by physically visiting a bank branch, and inter-branch banking was practically nonexistent. Cheques were settled manually through clearing houses, and interbank settlement could take several days. There was virtually no concept of real-time banking.
Stage 2: Computerization and Core Banking Systems (1980s–1990s)
The real introduction of technology in banking began in the 1980s with the introduction of standalone computers. Initially, computers were used for back-office functions like account maintenance and interest calculations. With growing volumes and complexity of transactions, banks realized the need for automation. By the late 1980s, some banks started deploying basic branch automation software. The 1990s saw the emergence of Core Banking Systems (CBS), which allowed centralized data management and interconnectivity of branches. This enabled customers to operate their accounts from any branch of the same bank—a significant shift from the earlier branch-specific accounts. CBS replaced branch-level record keeping with centralized databases, improving efficiency, consistency, and security. At the same time, banks began using Magnetic Ink Character Recognition (MICR) technology to speed up cheque processing and reduce human error in clearing operations.
Stage 3: Introduction of ATMs and Electronic Banking (1990s–Early 2000s)
The 1990s also marked the introduction of Automated Teller Machines (ATMs) in India, which revolutionized cash withdrawals. ATMs allowed customers to access cash 24/7 without entering a bank branch. Over time, ATMs evolved to include facilities like fund transfers, cheque deposits, mini-statements, and even bill payments. Concurrently, Electronic Fund Transfer (EFT) systems were introduced, enabling direct transfer of funds between bank accounts. This period also saw the rise of telephone banking and the early forms of internet banking, although access was limited due to low internet penetration. Another key development was the formation of the Indian Financial Network (INFINET) by the Reserve Bank of India (RBI) in 1999, which provided a secure communication backbone for interbank operations and was instrumental in supporting future digital initiatives.
Stage 4: Internet Banking and NEFT/RTGS (Early 2000s–2010)
The early 2000s ushered in internet banking and mobile banking, enabling customers to view account balances, transfer funds, and pay bills online. This was a turning point in customer convenience and banking outreach. Around the same time, the RBI introduced two landmark systems—National Electronic Funds Transfer (NEFT) and Real-Time Gross Settlement (RTGS). NEFT allowed individuals to transfer funds across banks on a batch-based settlement model. RTGS enabled high-value fund transfers in real-time and on a gross settlement basis, drastically improving the speed and reliability of interbank settlements. These systems reduced the dependence on cash and paper instruments and formed the backbone of electronic retail payments in India. Security protocols such as 2-factor authentication, digital certificates, and firewalls were introduced to protect users and banks from cyber threats.
Stage 5: Mobile and App-Based Banking (2010–2015)
The penetration of smartphones and mobile internet between 2010 and 2015 led to the explosion of mobile banking applications. Banks began offering apps for Android and iOS platforms, enabling users to check balances, transfer funds, apply for loans, block cards, and access services 24/7. Mobile banking apps evolved with biometric authentication, real-time notifications, QR-based payments, and voice support. Banks also integrated with Aadhaar and e-KYC platforms, making onboarding of new customers easier, faster, and paperless. This era also witnessed the rise of wallet apps and prepaid instruments like Paytm, Freecharge, and MobiKwik, which provided basic banking functionalities even to unbanked populations.
Stage 6: UPI and Fintech Revolution (2016–Present)
The launch of the Unified Payments Interface (UPI) by the National Payments Corporation of India (NPCI) in 2016 marked a paradigm shift in the Indian banking and payments landscape. UPI enabled real-time peer-to-peer and peer-to-merchant payments using mobile phones. It was based on a simplified model requiring only a Virtual Payment Address (VPA), eliminating the need to enter bank details. UPI is interoperable across banks and platforms and supports various transaction types, including collect requests and mandates. The simplicity, speed, and zero-cost nature of UPI transactions led to its mass adoption and significantly increased digital transaction volumes. Apps like Google Pay, PhonePe, and BHIM built on the UPI platform led to financial inclusion at a massive scale. Simultaneously, fintech startups began offering alternative credit scoring, digital lending, robo-advisory, neobanking, and microinsurance services, transforming how individuals and small businesses accessed financial services.
Revolution in Payment and Settlement Systems
Technology has profoundly revolutionized the payment and settlement systems in India by improving speed, efficiency, accessibility, security, and transparency. The earlier paper-based systems were replaced with electronic clearing services (ECS) and cheque truncation systems (CTS). The launch of NEFT and RTGS provided reliable, scalable, and efficient interbank transfer mechanisms. With the addition of IMPS (Immediate Payment Service) in 2010, mobile-based instant fund transfer became possible even outside banking hours. The Aadhaar Enabled Payment System (AEPS) allowed people in remote areas to withdraw or deposit money using just a biometric scan and Aadhaar number. It was particularly useful in Direct Benefit Transfer (DBT) schemes where government subsidies reached beneficiaries directly without intermediaries.
However, the biggest disruption came with UPI, which democratized digital payments. UPI enabled 24x7 transfers with minimal infrastructure, making India one of the top nations globally in terms of real-time digital transactions. The integration of QR codes simplified merchant payments, even for street vendors and micro-businesses. UPI’s interoperability allows one app to access multiple bank accounts, improving user experience. As of 2025, UPI handles over 10 billion transactions monthly, covering P2P, P2M, subscription, and bill payments. The UPI Lite, UPI Autopay, and UPI Credit Line features have added more layers of convenience and functionality.
On the backend, RBI and NPCI have implemented the Digital Payment Security Controls, ensuring banks comply with security protocols like encryption, anomaly detection, and real-time fraud prevention. The TReDS platform (Trade Receivables Discounting System) was introduced to allow MSMEs to discount invoices digitally. The Bharat Bill Payment System (BBPS) standardized bill payments across utilities. The recent introduction of CBDC (Central Bank Digital Currency) by RBI is another technological step aimed at providing a sovereign digital currency as an alternative to cash.
Conclusion
Subscribe on YouTube - NotesWorld
For PDF copy of Solved Assignment
Any University Assignment Solution
.webp)
