Digital banking means everything your bank lets you do through its app and website, together with the software behind it. Checking your balance, paying with UPI, opening a fixed deposit and applying for a loan are all part of digital banking.
Consider a normal week. You pay ₹20 at a tea stall with UPI. You check whether your salary has been credited. You may also withdraw cash from an ATM. Each of these tasks is handled by a different layer of software. Banks buy most of this software from other companies. They do not build all of it themselves.
The top layer is the apps on your phone. These include your UPI app and your digital wallet. Some people also use a neobank. A neobank is an app that offers bank accounts but has no branches of its own. Behind the app, a licensed bank actually holds the money.
The middle layer is the bank's own systems. The most important one is the core banking system. It holds every customer's account and records every rupee that is credited or debited. Next to it is a payment hub. The payment hub connects the core banking system to UPI, cards, NEFT and RTGS.
The third layer is the other ways you deal with your bank. It includes the ATM, the AI assistant that answers your questions in the bank's app, and the debt collection software. Debt collection software decides when to send reminders or make calls if a loan EMI is not paid on time.
The biggest change today is in the middle layer. Many Indian banks still use core banking systems that are twenty or thirty years old. Banks are now replacing these old systems, but they must keep working every day while they do it. This work is called core banking modernisation.