Financial services are the life blood of an economy, enabling households and businesses alike to buy, save, invest and protect themselves against risk. Yet in many emerging economies today, larger section of individuals and small businesses lack access to basic financial services. Around 1.7 billion people in the developing world lack access to banks, and 1.5 million small businesses cannot get the credit they need to grow.
The solution for the above problem can be summed up in two words called Digital finance. Digital finance is also an advantage for today’s banking system to access remotely through mobile applications.
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Meaning Of Digital Finance
Digital finance is the delivery of traditional financial services remotely through the internet & devices such as computers, tablets, and smartphones. In other words, digital finance is the term used to describe the advantages of new technologies in the financial services industry (FinTech).
Digital finance encompasses all products, services, and technologies that enable individuals and companies to have access to payment, saving, and credit facilities via the internet without the need to visit a bank branch. In this system, the user does not need to deal directly with the service provider.
While technological innovation in finance is not new, investment in new technology has substantially increased in recent years, with the pace of innovation in technology being exponential. AI, social networks, machine learning, distributed ledger technology, cloud computing and big data analytics have given rise to new services and business models to be used by established financial institutions and new market entrants. Accordingly, digital finance is increasingly becoming a new idea to be analyzed and experimented separately.
Difference between traditional finance vs digital finance
| Traditional finance | Digital finance |
| Banking done at branches. | Banking done through online mode such as online banking, mobile banking and telebanking. |
| Payment in physical mode. | Payment in cashless digital mode such as net banking, debit/credit cards, wallets or UPI etc. |
| Investment in real or financial assets. | Investment in digital assets such as cryptocurrencies. |
| Availing insurance and other services through branches or agents. | Availing insurance and other services through online applications. |
| Transacting traditionally may consume more time. | Time consumption is probably less in digital financing. |
| Remote area users may be unable to get the services due to a lack of infrastructure. | Through digital finance, remote area users are able to get the services. |
| It may not provide doorstep services. | It creates a revolution to provide traditional services to our doorstep by a single mouse click. |
Benefits of digital finance
Digital finance offers a whole host of benefits, which are discussed in below:
- It promises to boost the GDP of digitalized economies by providing convenient access to a diverse range of financial products and services.
- It also leads to greater economic stability and increased financial intermediation, both for the user and for the economy.
- Innovation in digital finance can have long-term positive effects on banking performance.
- Digital finance also benefits the money market regulators. This is because full scale digital finance adoption can significantly reduce the circulation of counterfeit currency and instances of money laundering.
- Through the adoption of digital finance, users enjoy benefits like greater control over their personal finances, quick financial decision-making, and the ability to make and receive payments within a second.
- It has the potential to provide affordable, convenient, and secure banking services to poor individuals in developing countries.
Governance of digital finance
- Governance of the internet economy and global internet.
- Management of intellectual property rights.
- Taxation.
- Customer privacy.
- Owning and sharing data.
Financial services are highly regulated. Digital innovation in finance cuts across traditional market players, such as banks, and new players, such as fintech and digital platforms. Thus, digital governance requires coordination across various industry players and various regulators beyond just the financial sectors.
Digitalization has reshaped the world of finance, including the emergence of a new generation of dominant digital finance platforms. This has necessitated a cross border approach towards the development of a comprehensive framework of governance.
In India, the governance norms specified for digital finance are still not existing. Regulations address various issues through different Acts and regulations.
Digital finance ecosystem
The users are consumers of products or services or buyers of digital assets. The digital finance ecosystem may be defined as all users and their complex transactional relationships in a given digital environment.
The various components of digital finance ecosystem are discussed in the following:
1. Digital infrastructure:
It includes
- Internet.
- Mobile telecom and digital communications suits include applications.
- Enterprise portal.
- Cloud services.
- Operational securities.
- Application programming interfaces (APIs) and integrations.
2. Digital money:
It includes
- Cards.
- Digital tokens.
3. Digital assets
It includes
- Non-fungible token.
- Private cryptocurrencies.
- Stablecoins.
4. Digital financial services
It includes
- Wallet.
- Unified payment interface (UPI).
- NEO-BANKS.
- Fintech.
Exploring The Advantages Of Digital Finance In India
Conclusion
Digital finance has continues to grow globally, for offering convenient financial transaction into various aspects of daily life and the global economy.