What is financial digitization?
The revolution of digitalization has already had its effects on almost all walks of life. From medical sciences to art, technology has also transcended into the financial sector, changing the face of traditional banking and finance. When technology is so intricately engaged in a system, it results in an eruption of countless possibilities.
Digitalization of simple and complicated processes, automated services, and technologically equipped setups is gradually becoming the new normal. Digital changes are emerging every day, giving rise to relentless competition and innovation.
In the financial world, digitalization majorly involves altering data and services into their digital forms. Instead of heavy paperwork, or long queues in banks, people can operate their accounts, take loans, update their KYC (Know Your Customer) online, and much more, from any corner of the world.
With so many possibilities of digitalization and automation, there is a very evident upsurge in the number of small and big businesses operating in the fintech (finance-technology) space. This has led to aggressive competition worldwide.
During the pandemic alone, there was a 57% rise in the adoption of digitalized payment services.
What technologies are used in finance?
There are several branches of fintech that have emerged in the past few years. The most common ones are the ones that have high adoption rates like e-payment, e-banking, e-KYC, etc. But there are innumerable services and technologies that are now picking momentum like chatbots using artificial intelligence, blockchains to operate cryptocurrencies, robotic process automation to analyze and process data with the involvement of manual work, etc.
Cloud Infrastructures – Traditional financial institutions and banks have started adopting cloud services to store and process data. When the data is stored in a systematic manner in the cloud, it is much easier to access, update, evaluate and scale. Cloud infrastructures were one of the pioneers of introducing the benefits of digitalization in the financial sector.
Application Programming Interfaces (APIs) – This technology has disrupted the traditional way of banking. Majorly provided by third parties, this technology has enabled easy and quick fund transfers and payments, directly and indirectly from bank accounts. The third-party acts like the technological front, while the customary banks and institutions partner with these third parties to merge their services with the latter. This simple technology has caused a revolution in the fintech world, enabling a disruptive change in the way people are handling everyday transactions and even small loans.
Automation – Automation is an integral part of a few services provided by banks nowadays. Payment and customer updates, communication from financial institutions to their customers, etc., are rapidly being automated. With automation comes a high level of accuracy and efficiency as it takes lesser time and leaves negligible margins for error.
Artificial Intelligence & Machine Learning – These are the quintessential branches of technology that can help a layman decipher the mere scope technology has. What started as simple chatbots which helped resolve simple customer queries, artificial intelligence has allowed us to reach an altogether different ballpark. Data analysis, automating complicated processes like credit analysis and loan approvals, artificial intelligence, and machine learning have taken fintech to a new high.
Robotic Process Automation – An extension of automation itself, RPA enabled by AI allows banks and financial institutions to process complicated procedures using software robots instead of manual labor, which saves time and resources tremendously.
Risk Assessment – AI can also be used for analyzing and evaluating risk for big and small investments. Investors nowadays rely heavily on digital platforms to help them ascertain risks and analyze trends, making the entire system more efficient and intelligent.
Regulation Technology – With such a mammoth scope comes serious responsibility. Digitalization has made financial dealings simpler and more organized for most of us, but with new start-ups and organizations innovating and disrupting conventional methods, regulating them becomes extremely crucial. While global economies and leaders lay out ever-changing regulatory policies, it is highly essential for banks and institutions to strictly follow and abide by them. For both these parties, reg-tech has been an indispensable component. With reg-tech it is easier to track policies and identify outliers. With a systematic set up in this regard, fintech can be made much safer and secure.
How has digitalization affected the banking sector?
Automated Services – With third-party involvement, automation vis-a-vis banking services is on a rise. Most of the conventional banks are gradually shifting most of their services online too, where it is much simpler to automate supplementary processes like data storage and updates, subscription renewals, small loan financing, etc.
Better Customer Services – With a lesser human focus on simple processes, the banks can now dedicate more resources towards enhanced customer services. This is also a result of the intense competition prevalent worldwide in the fintech space. With more startups and companies offering services at competitive rates, conventional institutions have had to up their game in this respect.
Less Human Error – Efficiency and accuracy follow the involvement of technology. Digitalization of services and processes leaves a small margin for error, making the entire system more efficient and reliable.
Easier to Store and Track – When data is stored in a digital format, it is much easier to play with. Easier access, complemented by automated updates and analysis saves time and churns better results.
More Employment – With the rapid transformation that has taken place in these past few years, the level of employment in the fintech sector has grown exponentially. According to the present-day statistics more than 52 million people are employed in this sector and the number is only growing as more and more start-ups are emerging every day.
The future of digitalization in the financial sector is evidently massive. With such close engagement of technology, the possibilities are limitless and the physical boundaries are gradually diminishing. The rapid adoption of the idea of non-fungible tokens (NFTs) and cryptocurrencies is demonstrated enough to understand how ready our world is to digitalize the financial space.