JD Duarte

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JD Duarte explains the transformation of digital finance

The digitalization of the economy has been accelerated as a result of the COVID-19 health crisis. Among other issues, the banking and financial industry is changing. Adapting to the new environment is key for financial intermediaries. Those who were lagging behind in their digital transformation plans may now have been left behind suddenly. JD Duarte, an entrepreneur and expert in business operations from Costa Rica, breaks down how digital finance is now changing.

Digitalization is becoming more visible in payments. Some experts believe that the pandemic has caused digital payments to reach levels that they expected to reach within two to five years in a few months.

If anything, the acceleration of digital transformation goes beyond payments. Consumers are beginning to become familiar with the use of apps, with which they manage all kinds of transactions and investments more efficiently. Thus, the model of “financial super apps,” which already triumphs in Asia, begins to penetrate Western countries at the hands of Big Tech.

Digital change also affects how consumers get financing. Explains Duarte, “Peer-to-peer (P2P) lending through online platforms is gaining popularity as an alternative to bank lending. The P2P lending market could reach $558.9 billion by 2027, with an annual rate of change of 29.7%.”

In addition, this process has important implications for financial inclusion. In regions traditionally less banked in terms of physical offices, the use of mobile wallets is beginning to be the norm. In fact, many governments in Africa have declared these wallets to be essential services, so they have banned fees from being charged for making transfers with them.

There are more novelties of the new environment. Traditional banking tries to adapt to the digital environment, but the growth in the volume of business in large technological platforms is increasingly evident.

Today, conventional banks account for only 72% of the total market value of the banking and payments industry, up from 81% in early 2020 and 96% a decade ago. Large technology companies, such as Amazon, Facebook or Ant Group, and payment platforms such as PayPal or Square, are doubling their turnover in recent years.

Banks, eCommerce platforms, big tech, FinTechs, social media companies and telecommunications companies are competing to become platforms through which users can buy a range of financial products, exclusively or in collaboration with third parties.

While experts see an increase in online shopping, they also believe that the use of cash will have a notable reduction. Many people, in the midst of the pandemic, have created the habit of making financial transactions through electronic channels. People now see much more value when paying electronically and not with cash.

Their arguments point to the fact that people are perceiving cash as a transmitter of germs and viruses, as it passes from hand to hand. Says Duarte, “People are beginning to understand that they can buy more online, and the same businesses are requesting sales schemes not present, so that in a non-face-to-face way they can make transactions. The demand for dataphones for customers to pay with cards is growing.”

Like most businesses, banking and financial services organizations are struggling to adapt to this disruptive new digital world. While those with the right experience and knowledge are finding great opportunities through data analytics, sadly, not everyone is necessarily ready to deploy these solutions.

Big Data in finance has simply become impossible to ignore. Whether it’s private institutions or central banks, the solutions provided by analytics are increasingly necessary for anyone operating in the modern world, for better or worse.