Digital technology innovation has changed the face of banking. Digital finance is a financial services delivered through mobile phones, personal computers, the internet or cards linked to a reliable digital payment system, it encompasses a magnitude of new financial products, financial businesses, finance-related software, and all forms of customer communication and interaction. Also encompasses all products, services, technology and/or infrastructure that enable individuals and companies to have access to payments, savings, and credit facilities via the internet (online) without the need to visit a bank branch or without dealing directly with the financial service provider.
Financial services are part of the vital infrastructure of a modern economy, enabling individuals, businesses, and governments to transact cheaply and efficiently, including banks, -telecommunications companies, payments providers, financial technology start-ups, retailers, and others, the potential business opportunity is large. Banks and non-banks offer digital financial services for the financially populations, building on the approaches that have been used for years to improve access channels for those already served by banks and other financial institutions. Innovative digital financial services involving the use of mobile phones have been launched in more than 80 countries and as a result of the significant advances in the accessibility and affordability provided by digital financial services, millions of poor customers are moving from exclusively cash-based transactions to formal financial services and the benefits of this development includes economic growth and stability, both for the customers and for the economies.
Financial services users benefits from digital finance providers, governments and the economy, for example, digital finance could provide access to 1.6 billion unbanked people, more than half of them women. An additional $2.1 trillion of loans to individuals and small businesses could be made sustainable, as providers gain newfound ability to assess credit risk for a wide range of borrowers. Governments could gain $110 billion per year by reducing leakage in public spending and tax collection and providers of financial services would benefit, too. They could save up to $400 billion annually in direct costs by shifting from traditional to digital accounts, which can be 80 to 90 percent less expensive to service. Delivering financial services by mobile phone could benefit billions of people by spurring inclusive growth of emerging economies. Research finds that widespread adoption and use of digital finance could increase the GDPs of all emerging economies by 6 percent, or a total of $3.7 trillion, by 2025 and this GDP could create up to 95 million new jobs across all sectors, increase access to finance among poor individuals, reducing the cost of financial intermediation for banks and its providers, and increasing aggregate expenditure for governments.
In future, the fastest-growing segment of digital commerce, and perhaps the most strategically disruptive, will be “frictionless” transactions which occurs when consumer purchases are automatically initiated without an explicit consumer purchase decision and the purchase decision is made on behalf of the consumer, with his or her advance consent, using real-time, integrated data from preferences, past behaviors, sensors, and other sources of contextual data and makes it convenient for the consumer to shopping, freeing up time for other activities.
Economic growth suffers but unknowingly a solution is right in people’s hands, payments and financial services delivered via mobile phones and the Internet—could transform the lives and economic prospects of individuals, businesses, and governments across the developing world, making the aspiration of financial inclusion a reality. Through digital platforms one can contribute to poverty reduction and the financial inclusion objectives of developing economies and key components have been identified to contribute to digital financial service: a digital transactional platform, retail agents, and the use by customers and agents of a device – most commonly a mobile phone – to transact via the digital platform. Meanwhile, digital financial user will have an existing bank account which they own (or third-party accounts with approved permission to use them), and should have available funds (or overdraft) in their accounts to make cash payments (outflows) or to receive revenue (cash inflow) via digital platforms including mobile devices, personal computers or the internet.
The technological benefits of all mentioned promises to help banks lower costs by reducing queuing lines in banking halls, reduce manual paperwork and documentation and to maintain fewer bank branches, large number of depositors can easily switch banks within minutes; forcing banks to provide quality services or risk losing depositors to rival banks.
Article by Blessing Bassey