Monetary Policy Transmission Through Digital Banking Channels

Abstract

The years 2020–2025 brought unprecedented digital transformation across the global financial system. Adoption of digital banking services—mobile banking, real-time payment systems (UPI, Pix, Fed Now), online banks, neobanks, digital wallets, and fintech lenders—accelerated significantly, altering the speed and strength of monetary policy transmission. This paper analyses the relationship between digital financial channels and monetary policy effectiveness during 2020– 2025, focusing on changes in interest-rate pass-through, lending behavior, liquidity dynamics, and credit allocation. Evidence from India, Brazil, and the United States demonstrates that digital ecosystems improved deposit mobility, enhanced competition, and accelerated rate transmission across markets. However, the rise of digital finance introduced risks such as cyber security threats, instant deposit flight, fintech-driven instability, and regulatory gaps. The study concludes that digital banking has become an integral component of the monetary transmission mechanism and recommends that central banks incorporate digital indicators into policy frameworks for effective future governance.