Recent Innovations by Small Finance Banks in India; A Transformative Path Toward Inclusive and Digital Banking

Abstract

Small Finance Banks (SFBs) in India play a vital role in advancing financial inclusion by serving underserved and low-income populations. This study examines the impact of recent technological innovations such as digital banking platforms, fintech collaborations, artificial intelligence (AI), and payment innovations on customer experience, service quality, and financial inclusion. Using a quantitative research design, data were analysed through Structural Equation Modelling (SEM) to assess the relationships among key variables, including operational efficiency and customer satisfaction. The findings reveal that technological innovations significantly enhance operational efficiency and service delivery in SFBs. Among the innovation dimensions, AI and data analytics demonstrate the strongest influence on efficiency and decision-making. The study further establishes that operational efficiency positively affects customer satisfaction, which in turn plays a crucial mediating role in promoting financial inclusion. Digital banking platforms and payment systems also exhibit a direct positive impact on customer satisfaction and accessibility of services. However, challenges such as limited digital infrastructure, cybersecurity concerns, regulatory complexities, and low digital literacy hinder the full realization of innovation benefits. The study highlights the importance of regulatory support in strengthening the effectiveness of innovation-driven outcomes.