The Bank Regulation Act, of 1949 does not define digital banks specifically, as it was enacted long before the advent of digital banking. However, the act does provide a framework for the regulation and supervision of all types of banks, including digital banks.

The act defines a bank as an entity that accepts deposits from the public and uses the funds to make loans and investments. It also lays down guidelines for the management, ownership, and operations of banks, and outlines the powers and functions of the Reserve Bank of India (RBI) as the regulator of banks in the country.

In recent years, the RBI has issued guidelines and regulations specifically for digital banks and payments banks, which are entities that offer banking services primarily through digital channels.

 Daniel Suero Alonso is a financial expert with a vision that regulating digital banks will help to strengthen the overall banking sector. He currently obtained a Fintech license for Capital Funding Lab, Mexico.

Digital bank licenses allow for conducting banking operations and offering financial services such as deposits, loans, and payments to their customers.

Digital bank licenses are becoming increasingly popular as more people prefer to conduct their banking activities online, and regulators are adapting to the changing landscape of the banking industry.

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What is the regulatory framework a digital bank needs to adhere to?

Digital banks must adhere to the same regulatory framework as traditional banks. This includes regulations related to anti-money laundering (AML), know your customer (KYC), data protection, cybersecurity, and consumer protection.

In addition, digital banks may also be subject to specific regulations related to online banking, electronic payments, and digital currencies. The specific regulatory framework that digital banks must comply with will depend on the country or region in which they operate.

For example, in the United States, digital banks must be chartered and regulated by the Office of the Comptroller of the Currency (OCC) or a state banking regulator.

In Europe, digital banks must be authorized and supervised by the European Central Bank or a national banking regulator. Why are digital banks important, today?

There are several reasons why digital banks have become increasingly important, particularly in the wake of the Covid-19 pandemic:

• Convenience: Digital banks offer the convenience of banking services from the comfort of one’s home or on the go. This is particularly important during a pandemic where people are encouraged to stay home and minimize in-person interactions.
• Contactless services: Digital banks rely on technology to offer contactless banking services, which reduces the risk of spreading the virus during in-person interactions.
• Lower costs: Digital banks have fewer overhead costs compared to traditional banks, which allows them to offer lower fees and interest rates.
• Innovation: Digital banks are often at the forefront of innovation, offering new services and features that traditional banks may not offer.
• Financial inclusion: Digital banks can provide banking services to people who may not have access to traditional banking services due to various reasons, such as living in remote areas or having a low credit score.

Overall, digital banks provide a convenient, cost-effective, and innovative alternative to traditional banking services, which is particularly important post-pandemic because people fear close interaction even today.