The COVID-19 pandemic has prompted the world to focus on digital finance, with its potential to provide relief to millions of people around the world. Digital finance can also help support businesses and protect jobs. But it’s important to consider a number of challenges before implementing digital finance. Let’s look at a few key challenges.
Access to financial services is not always easy, especially for those in the developing world. But digital finance can help make the process easier and cheaper, helping millions of people build financial assets. In addition, it can help improve governance, promote innovation, and create more resilient communities. But while digital financial services have huge potential for development, they also pose risks and challenges, particularly for underbanked or unbanked customers. These customers are often uninformed about financial services and have little or no experience with digital technology.
The digital finance industry is seeing a significant shift in the way financial services are provided. Companies and public authorities are moving towards a more transparent and efficient system. Digital banks allow clients to open bank accounts digitally and perform banking transactions around the clock. And while the basic functions of the financial system haven’t changed, the digital world allows for better planning and reporting of financial data.
In addition to enhancing efficiency, digital finance will reduce costs for financial service providers. It will also allow them to tap into the $4 trillion in deposits that lay under people’s mattresses. It will also open up new channels for lending and increase liquidity in the economy. In short, digital finance is the future of finance. By leveraging mobile payments and artificial intelligence, digital finance is redefining the way people access finance. Today, banks have invested more than US$1 trillion in these new technologies. In the last year alone, fintech investment hit a record US$120 billion.
The United Nations’ Task Force on Digital Finance has outlined an ambitious Action Agenda. It proposes a series of goals to empower citizens, investors, and financial institutions. It also points out how digital finance can better align with the Sustainable Development Goals. In addition to enhancing the global economy, digital finance will also help make public finance more efficient. For example, digitally aggregated domestic savings can be channeled into long-term development finance.
One of the key challenges facing our generation is financing sustainable development. The benefits of fintech technology can help us to finance the development of our planet, but it comes with risks as well. To address these risks, the UN Environment Programme and Ant Financial Services have launched the Green Digital Finance Alliance. The Alliance aims to harness the potential of digital finance and other fintech-powered business innovations.
The EU has taken several initiatives to prepare its financial sector for digitalisation. Its aim is to accelerate the development of innovative digital finance solutions while maintaining financial stability and ensuring the protection of consumers.