BY ADITYA JINDAL
What’s the first thing that comes to your mind when you hear the word finance digitization? One may think of transacting via Paytm, while others may refer to it as transferring money to a friend.
But is it so straightforward?
Well, I would like to disagree. Let’s dive into some key areas and develop a better understanding about this topic
What is Digitization?
Before we make our way through Finance Digitization, let us understand what digitization stands for.
Digitization is the conversion of analog data into digital form. It refers to taking information and encoding so that it can be processed, stored, and transmitted electronically. If you have ever converted your handwritten document into an electronic file or old photographs into ‘JPEG’ images, you have knocked the doors of digitization.
Now let’s introduce ourselves to the concept of Finance Digitization.
What is Finance Digitization?
Having understood the concept of Digitization, Finance Digitization can be brought forward as a comprehensive process of converting large compilation of register-based records into digitally transferrable data or making payments at a local grocery store, further leading to the ultimate introduction of the worldwide Blockchain-based Cryptocurrencies.
One cannot fathom the depth of this concept. Besides the above-mentioned examples, Finance Digitalization has a lot under its umbrella ranging from converting signature to an electronic format for signing documents online to placing a buy order of shares listed on any of the World’s Stock Exchanges just with a single click.
How Has Digitalization Benefitted Business
Digitization has been the root cause for transformation and businesses have gained tremendously in terms of managing operations. Digitization has helped businesses to significantly reduce their cost of operations thereby increasing productivity by various automation processes in its day-to-day activities.
Let’s explore the various pillars of finance where digitization has impacted tremendously:
Blockchain
Blockchain is a digital collection of transactions that are tracked and recorded in a decentralized network. This technology manages transactions and information by securing them as they occur. The purpose of blockchain is to lower the cost of transactions and make them more efficient and faster. Numerous instances across the globe have proved that the blockchain technology is valuable in a wide variety of banking and investment applications. These include solving challenges faced by investment banks, helping customers make safer payments, easy availability of information, etc.
Biometrics- Especially Around Mobile Payments
Biometric authentication is a security process that relies on the unique biological characteristics of individuals to verify their identity whom they pretend to be. Biometric authentication systems compare physical or behavioural traits to stored, confirmed, authentic data in a database.
Mobile payment innovations could substitute the traditional wallets entirely as global consumers are becoming less reliant on cash. Companies such as Google and Apple already have their own payment platforms and continue to roll out new features such as biometric access control, inducing fingerprint and face recognition, which is likely to become the preferred route of access over the next decade.
Greater Collaboration Between Fintech And Traditional Banks
Financial technology (Fintech) is used to describe new technology that try to improve and automate the delivery and use of financial services. While many financial institutions are continuing to adopt new technology to enhance operations and improve customer service, Fintechs provide exciting opportunities for ongoing innovation. Already, financial institutions have understood the need to learn how to use fintech to their competitive advantage. This area is going to develop by leaps and bounds in the years to come.
Fintech also includes the development of cryptocurrencies such as bitcoin.
Now as we have discussed various points in favour of Finance Digitization, we certainly cannot lend a deaf ear to the other side of it. So let’s begin.
The emergence of COVID-19 accelerated the introduction of bulky technology for various industries including Finance. The world entered into a deeper and advanced digital era but the stimulating factor was compulsion to avoid catastrophe rather than volunteering for this change.
A process which under normal circumstance would probably take several years, considering the cultural foundations of working, consulting or trading. However, it, became a stark reality within a few months.
Talking about the other side of the coin, following problems are faced:
Lack of Tech Expertise
In the fintech industry, some of the finance companies or banks lack proper mobile banking services. A lack of expertise in fintech mobile app development services results in non-user-friendly applications which ultimately leads to underutilization.
Compliance with Government Regulations
Finance has been one of the most regulated sectors. There has been and will always be interference from the government’s side even if you leverage the traditional Fintech software that doesn’t use blockchain and other crucial technologies.
Data Security
Data security has been one of the major concerns in the Internet world — be it mobile banking, payment apps, or Fintech in general. As we know, traditional banking systems have been confident with security guards, CCTVs, vaults, and heavy bulletproof doors to keep their data safe and secure. However when it comes to digital security, things are not as easy as we think. Vulnerabilities are much more discreet and potentially have more impact on users, as not only their money is at stake but their confidential data too. Post Covid-19, technology such as UPI has come in. However, along with a remarkable payment system, it has also usher in a new era of scams and money laundering.
Conclusion
To sum up, we now have a detailed view of what FINANCE DIGITIZATION is and its impact on the overall Finance Industry. Also, we explored the various challenges that the process is facing and is expected to face in the future. Having understood all of it, we are now in a position to take a stance as to how we see the future in the context of further digitization of the Industry.
Thank you for reading patiently!
ABOUT THE AUTHOR
Aditya Jindal is a first year B. Com(H) student at Kirori Mal College, University of Delhi. He is a Finance Enthusiast and CA Aspirant. He further looks to pursue a career in the field of finance.
Disclaimer: The views expressed in this article are the author’s own and do not necessarily reflect the views of the organization.
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