The financial industry is no exception to the transformative power of technology in the booming digital era. The term digital finance refers to the digitalization of the financial industry which involves all electronic products and services like credit cards, home banking, and home trading services.(1) This innovation transformed the financial industry by making financial services more accessible, efficient, and user-friendly. 

This update will discuss some key aspects and components of digital finance and certain benefits and challenges that emerged from the disruption of traditional banking and investment practices.

DIGITAL BANKING

This platform involves online and mobile banking services that allow customers to perform traditional banking activities such as checking account balances, transferring funds, and paying bills from the convenience of their computers or smartphones.

MOBILE PAYMENTS

Under lockdown across the globe to survive fintech applications became fundamental for daily operations like receiving payments, placing orders, transferring money, paying taxes, and gaining access to credits. (2) The volume of mobile payment transactions around the world risen from US$ 8.6 billion in 2015 to US$ 255.9 billion in 2021. (3) Major contribution to this was based on areas like Alipay and WeChat Pay in China, MobiCash in Bangladesh, and Paytm in India. (4,5,6)

CRYPTOCURRENCY AND BLOCKCHAIN

Digital finances include cryptocurrencies like Bitcoin and the underlying blockchain technology. These technologies offer decentralized and potentially more secure means of transferring and storing value. (7)

PEER-TO-PEER (P2P) LENDING

P2P lending platforms connect borrowers with individual or institutional lenders, bypassing traditional financial institutions. Borrowers often find these systems more accessible, and lenders achieve higher returns.

CROWDFUNDING

Digital finance has revolutionized the way start-ups and projects raise capital. Crowdfunding platforms allow individuals to invest in or donate to ventures, often through online platforms. (8)

BENEFITS OF DIGITAL FINANCING:

1. Accessibility and Financial Inclusion

Digital finance has the potential to bridge the gap between the financially underserved and traditional banking institutions. With just a smartphone and an internet connection, individuals in remote or underserved areas can access a range of financial services, empowering them independently and economically.

2. Convenience and Speed

In a fast-paced world, time is the most crucial element. Any bank-related services involved long queues and waiting. Digital financing has allowed customers to carry out transactions, pay bills, and manage their accounts from the comfort of their homes or on the go. This convenience, paired with real-time processing, significantly reduces transaction times.

3. Cost Efficiency

Traditional banking can be associated with high fees and overhead costs. This digitalization platform typically has lower operating costs, allowing it to offer customers competitive rates and reduced fees. This makes investing and managing finances more cost-effective.

4. Innovative Investment Options

Digital financing brought about the rise of robo-advisors and P2P lending platforms. This provides individuals with new and accessible investment opportunities, often with lower minimum investment requirements.

5. Enhanced Security and Fraud Prevention

Cutting-edge security measures, including biometrics and advanced encryption, make digital financial transactions more secure. Additionally, data analytics and artificial intelligence (AI) are used to detect and prevent fraudulent activities.

CHALLENGES OF DIGITAL FINANCING

1. Security and Data Privacy

The digitized financial industry is a prime target for cybercriminals. Maintaining the security and privacy of customer data is a continuous challenge and breaches can lead to significant financial and reputational losses.

2. Regulatory Compliance

Financial regulations are constantly evolving to address the complexities of the digital finance landscape. Startups and established institutions alike must navigate a complex web of regulations, which can vary from one jurisdiction to another.

3. Lack of Digital Literacy

While digital finance is accessible to many, not everyone is equally proficient in using these innovative technologies. There is a learning curve for older generations and individuals in less technologically developed regions.

4. Market Saturation and Competition

This sector of digital financing is highly competitive, with numerous startups and traditional banks vying for market share. This competition can make it challenging for newbies to establish themselves.

5. Technological Risks

Reliance on technology carries inherent risks, such as system failures, outages, and technical glitches. Such incidents can disrupt financial services and erode customer trust.

CONCLUSION

Digital financing offers a promising future for the financial industry, providing accessibility, efficiency, and innovative solutions. However, it is essential to address the challenges that come with this transformation. Apart from the issues discussed the limitation of modernization and technological advancements in certain places with lower income might require advancements in every aspect to experience this revolution in the financial sector. Striking a balance between reaping the benefits and managing the challenges is the key to harnessing the full potential of digital finance in the years to come. As technology continues to evolve, so too will the landscape of digital finance, promising further opportunities and challenges for the industry and consumers alike.

REFERENCES:

• Banks E (2001) e-Finance, The electronic revolution, 1st ed. Wiley, Chichester.
• Sahay, R., Ulric, E., von, A., Amina L, Purva, K., Sumiko, O., Majid, B., et al. (2020). The Promise of Fintech; Financial Inclusion in the Post COVID-19 Era. Bretton Woods, NH: International Monetary Fund.
• McKinsey (2021). Survey: Global B2B Decision-Maker Response to COVID-19 Crisis. New York, NY: McKinsey and Company. Available online at: https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/survey-global-b2b-decision-maker-response-to-covid-19-crisis-2021 (accessed May 10, 2022).
• Li, S., François, C., and Martin, R. (2018). Lessons from China's digital battleground. MIT Sloan Manag. Rev. 59, 1–6.
• Sinha, A., Mishra, S., Sharif, A., and Yarovaya, L. (2019). Does green financing help to improve environmental & social responsibility? Designing SDG framework through advanced quantile modelling. J. Environ. Manag. 292, 112751. doi: 10.1016/j.jenvman.2021.112751.
• Liao, L., and Yang, J. (2020). Angry borrowers: negative reciprocity in a financial market. PBCSF-NIFR Research Paper. Liao, L., and Yang, J. (2020). Angry borrowers: negative reciprocity in a financial market. PBCSF-NIFR Research Paper.
• Narayanan, A., Joseph, B., Edward, F., Andrew, M., and Steven, G. (2016). Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction. Princeton, NJ: Princeton University Press.
• United Nations. (2020). Digital Financing Report for 2020. Available online at: https://www.un.org/topics/taxation/digital-financing-repor2020.pdf (accessed May 3, 2022).