Impact of financial digitization

Abstract

Nations worldwide are developing at a fast pace and much of this can be attributed to the extent of digital adoption. The developed countries have much higher digital penetration than developing and underdeveloped countries. Digitization has seeped into every aspect of an individual’s life. Online retail shopping, traveling, banking, education, media, etc. are some of the industries which have seen huge digital transformations in the recent years. Digitization helps people connect more easily and quickly across geographies. The adoption of digital services is increasing by the day and its consumers include both the individuals as well as industries. As per a Strategy& report, there are three closely linked forces that bolster each other in a manner that facilitates even faster and higher digital adoption in every corner of the world – i 1. Consumer Pull – The consumers who are already aware of the digital environment are willing to adopt even more digital services. They are open to suggestions from friends and relatives (who again are digitally equipped) about new services and are more likely to adopt them. 2. Technology Push – The digital technology is evolving at a quick rate. Digital infrastructure is improving throughout the world and development costs are reducing due to quicker adoption and economies of scale. This further incentivizes companies for research and development in their field and bring more disruptive innovations. 3. Economic Benefits – Digitization helps save costs and hence always has an economic benefit attached to it. Investment by companies for digitization of their processes, products, and services is constantly increasing. Even consumers get more cost advantages by adopting newer technologies. Thus, there is a megatrend of digitization that is currently sweeping across the globe. Under such circumstances, it is reasonable for developing nations to push towards digitization. This would not only improve the standard of living in these nations but would also help in the economic growth of the country. The financial sector is a key segment in any emerging economy (like India) and enhanced digitization and services in this area would prove to be valuable in the growth and development of such nations. The current trends in the Indian financial ecosystem are quite encouraging and favourable for a digital transformation. With the ever-increasing penetration of internet and smartphones in the Indian market, the prospects for adoption of digital services seem promising. New customers can be expected to enter the banking landscape owing to several government initiatives like Jan-Dhan Yojna, Digital India, demonetization, etc. (Appendix 6.1 presents some statistics that bolster this argument). Hence, this would be the optimum time for the fintech industry to look for innovative and disruptive ways to intercept and capture the existing as well as probable future customers seeking financial services. At the same time, the incumbents will have to innovate to keep up with these incoming digital disruptors.