Challenges and Benefits of Digital Finance

The Global Development Goals and the challenges of low-income people intersect with the needs of digital financial services. Financial inclusion opens the door to basic life-changing services and sustainable livelihoods, such as reliable access to clean water. The challenge is to improve consumer experience and create better payment systems in order to increase financial inclusion. To do this, organisations are exploring the potential of digital finance to improve existing solutions and create new ones. Here are some examples of the challenges and benefits of digital finance:

COVID-19 pandemic has triggered unprecedented economic and social crisis, bringing to the fore the potential of digital finance. Its use in relief for millions of people across the world and the role it can play in supporting businesses and preserving jobs is a major global concern. But how can it be implemented? Digital finance can transform financial institutions and enable a world where everyone can access financial services. Listed below are some ways that it can improve lives.

Financial inclusion will increase if digital finance services are accessible and affordable for poorer and low-income populations. High-income users of digital finance services can persuade relatives and friends in the informal sector to open bank accounts. Testimonial persuasion works better for communities that are hesitant about using technology in finance. For example, people in the informal sector are unlikely to trust marketers who tell them about the benefits of digital finance. Then, once their family members and friends open a bank account with their high-income banks, the rest of their lives will be more stable and prosperous.

As digital finance becomes more widespread, more rural people will have access to financial services. Digital finance will also enable more people to access basic services. Further, it will allow rural areas to benefit from improved financial inclusion. The benefits of digital finance are not only for financial services users but also for governments and the economy. Further, digital finance can reduce the cost of financial intermediation for banks and Fintech providers and increase aggregate expenditure for governments. And the future of digital finance is bright.

Despite its numerous advantages, digital finance has also come with several issues. In this article, we address some of the challenges and the benefits of digital finance for individuals and businesses. These issues are relevant to projects at the country-level as well as for individual and corporate level. If these issues are addressed, digital finance can help to improve economic development and financial inclusion. In addition to the positive effects, it can also reduce poverty in low-income countries and other developing regions.

Digital finance can improve financial inclusion by expanding financial services to people and businesses without access to formal banking accounts. Digital financial services should be low-cost, allowing more people to access financial services. The CGAP has set a 2015 deadline to fully realize the benefits of digital finance. As of this writing, at least 80 countries have launched innovative digital financial services that are attracting millions of poor customers to exclusively use digital financial services. With this, digital finance can help countries achieve their goals of financial inclusion.