Does India need a bank that is built digital, not digitised?

In a single month in 2026, Indians used UPI roughly 23 billion times to move close to ₹30 lakh crore. That is a scale most economies don’t reach in a year, let alone a month. That volume is not happening in isolation. India’s teledensity (the number of phone connections per 100 people) has crossed 93% according to TRAI, and the country’s Gen Z and Gen Alpha population alone adds up to about 700 million people, which is close to half of the country’s population. Growing digital payments, smartphone penetration and the generation growing up on both are together the drivers behind a simple argument – with infrastructure this far along, why hasn’t India built a genuinely digital bank yet, rather than a traditional bank with better apps?

Digitised Vs digital

The groundwork is already there. According to Deloitte India’s 2025 Digital Banking Maturity, Indian banks’ digital maturity score jumped from 43% to 59% in three years, with nine Indian banks named among just 40 global Digital Champions out of the 349 banks that were studied worldwide.

But that number needs a caveat. “A digitised bank digitises its existing channels while a digital bank builds its entire stack around the digital channel,” said Vipin V, Managing Director and Partner at Boston Consulting Group (BCG). That shows up first in the technology in the form of an API-driven, cloud-native, modular architecture built for a clean customer view from day one, versus a new-age app sitting on top of a legacy core where the same customer data is often scattered across systems that were never built to talk to each other.

It also shows up in the economics. “Digital banks run at a 20-25% cost-to-income ratio, whereas traditional incumbents run at 40-45%,” Vipin V further said. India has clearly become good at digitising what already exists. We haven’t yet built much that was designed digital from the start.

There is also a demographic case, and it is a large one. A BCG research with Snapchat put India’s Gen Z population at 377 million and Gen Alpha at 330 million, cohorts who will be prime banking customers over the next decade. They are 1.5 times more likely than millennials to research a purchase before making it, and 1.7 times more likely to pick what’s trending over an established brand. “For them, trust won’t come from heritage. It will come from being transparent, reliable, and woven into how they already live,” Vipin V added. That is a demanding customer to serve with a bank built for a different generation.

The safety case

So where would a genuine digital bank actually be useful for an Indian customer today? The clearest case is in cities. As UPI has become the default way to pay for nearly everything, bills, subscriptions, food delivery, shopping, a growing number of urban customers are opening a second account specifically to run those payments through, keeping their main savings account further from the everyday risk of fraud and scams. That is not a hypothetical behaviour. Digital payments now account for about 56.5% of all reported banking frauds, according to the Reserve Bank of India (RBI) FY25 annual report, and the finance ministry told Parliament that Indians lost ₹805 crore to UPI fraud in just the first eight months of FY26, across more than 10 lakh incidents. A second account built specifically to absorb that risk seems like a direct answer to the fastest-growing category of financial fraud in the country.

Looking beyond digital banking units

This is also where the regulatory picture gets more complicated. India already has a version of a digital bank on paper: the RBI’s digital banking units, of which 75 have been set up by banks across the country. “Our answer so far has been digital banking units, which is honestly just lip service to what we are trying to do. That hasn’t addressed the Gen Z need. 98% of banking transactions are anyway digital today,” said Rakesh Pozhath, a partner at Bain & Company.

His argument isn’t that India needs to wait for an entirely new category of licence, but that the current halfway measure isn’t precise enough. “It’s about carving out licences, but also being clear on what these digital banks will do,” he said, adding that “You might say you do a retail-only digital bank, or an MSME-only digital bank, with requirements on paid-up capital, governance, and the share of business done in that segment.” Done well, he argues, that could have a real effect on both financial inclusion and the commercial sustainability of these institutions, “which is kind of what Brazil, Mexico, Colombia and Nubank have demonstrated”.

The global picture

This is roughly the pattern that the world’s successful digital banks followed. Nubank, Revolut, Chime and Monzo built inside the regulatory structures available to them, usually starting as somebody’s second account before earning a bigger share of their customers’ banking lives. All in all, it wouldn’t be far-fetched to say that India has the payment rails, the smartphone reach, a coming generation of Gen Z and Gen Alpha customers, and, per Deloitte’s own numbers, a banking sector already more digitally capable than most.