Digital transformation of finance: a new era unveiled
The writer is part of the Faculty of Accounting & Finance at Lahore Grammar School, SICAS and The Lahore ALMA. He can be reached at rizwanulhassan737@gmail.com
A profound shift toward digital transactions shapes how we interact with money in the ever-changing landscape of finance, economics and technology, with significant implications for the economy, financial inclusion and taxation. Digital transactions have transformed the way we handle money. Online payments, mobile wallets and cryptocurrencies have faded the distinction between traditional banking and digital finance. These new channels enable consumers to manage their finances with just a few taps on a screen, transforming personal and corporate finance management.
The new digital transformation is a significant economic growth driver. The ease with which business transactions can be conducted online has increased, particularly in the e-commerce sector. For example, business transactions integrating with mobile applications for payments and checkouts, the introduction of mobile wallets and Apple Pay are simply no sweat. Economic activities become more fluid and efficient as businesses adopt digital payment methods.
The push for financial inclusion is one of the most transformative effects of digital transactions. Traditional banking services frequently left underserved populations behind, but digital finance is closing the gap. Individuals in remote areas can now access banking services through mobile banking and digital wallets, allowing them to save, borrow and invest. As financial transactions become more digital, the world of taxation faces new challenges. The digital economy crosses borders, making it difficult for governments to track and tax online income. Since digital finance is global, it raises concerns about fair taxation and how governments can ensure that digital transactions are subject to appropriate tax regulations.
Cryptocurrencies: In the world of digital finance, cryptocurrencies have emerged as a disruptive force. They provide decentralised and borderless transactions, putting traditional financial systems to the test. While cryptocurrencies hold promise for financial inclusion and lowering the cost of cross-border transactions, they also pose regulatory challenges. Governments are grappling with how to tax and regulate these digital assets effectively.
The evolving future of digital finance: The rise of decentralised finance (DeFi) platforms and central bank digital currencies (CBDCs) will give digital finance new dimensions. DeFi provides decentralised lending, borrowing and trading, whereas CBDCs are government-backed digital currencies that have the potential to increase financial inclusion and efficiency. Furthermore, the shift to digital transactions represents a fundamental shift in finance, economics and technology. It provides convenience, economic growth and financial inclusion, but it also puts traditional taxation systems to the test. Finding the right balance between innovation and regulation as we navigate this digital frontier will be critical to maximising the benefits of digital finance while managing potential risks.
Artificial Intelligence: AI will continue to play the game across all industries after achieving immense success with the new and improved productions in 2023. Even though AI adoption in the financial and banking industries is relatively slow compared to other industries, its effect is still transformative. The economic sectors have been optimising new technologies, tackling the risks perfectly, and delivering personalised services.
Chatbots for customer service: Customer services have been established and improved in financial performance due to the AI chatbots. These intelligent assistants help customers from answering their real-time queries, providing 24/7 personalised support, to processing the transactions smoothly. With the advancement in AI, these chatbots have proved to be enhancing overall performance, seamless interactions and growing customer satisfaction.
Anti-Money Laundering (AML) compliance: Money laundering is a significant issue in which people attempt to conceal illegal funds in the banking system. AI examines a large amount of financial data for any suspicious activities or patterns. This way, bad guys can be examined from escaping.
Fraud detection: According to the PwC report, Indian companies are at stake in economic fraud and crimes. In this situation, fraud detection by AI comes as the light for all financial industries. Customer behaviour and transactional patterns are easy to anticipate or analyse by machine learning. This has been proven to be an effective and efficient method to identify fraud services. It also enables the protection of customer’s information and funds immediately..
Personalised financial advice: The intelligent chatbots can easily spot and identify behavioural patterns, analyse customer data providing personalised financial advice and support according to preferences. Through this insight assistance, the customers can learn about investments, spending and saving and can make informed decisions.
Robo-Advisors: Computer assistants who use fancy maths to assist people in making smart investments and managing money are known as Robo-Advisors. These bots look deeply into the scale of risks customers are willing to take, their goals with the money, and the stock market situation. They are making the investment easier for customers. In a report by Statista, it’s expected that around 26.82 million people will be using these Robo-Advisors by 2027.
Risk assessment: Every type of information used by AI to help banks decide if they should lend money to someone, pay an insurance claim, or invest in something is called risk assessment. It delves into the important data and history of a customer to check if it is reliable and eligible or not.
Customer churn prediction: AI can tell if a customer might leave their bank. AI can analyse this by going deep into the whereabouts of the customers and the way they use their bank accounts, resulting in fixing the issues beforehand and keeping the customers happy.
Voice biometrics for security: AI uses your voice to make sure you are who you say you are. It adds another secure layer when someone talks to the bank on the phone. This makes fraud and misleading detection easier.
To conclude, the exceptional role AI plays in evolving the economy and finance in the coming years is undeniable. As we move into 2024, the transformation of digital finance is impressively empowering the overall economy and business industry worldwide. Digitalisation is inevitably pushing change in financial services, with several benefits such as better customer service, streamlined processes and enhanced risk management. Financial institutions are actively integrating AI-powered solutions to drive growth, competitiveness and innovation in the ever-evolving and dynamic financial industry. As we expect AI to continuously transform the financial landscape, no doubt, more transformative and surprising changes in banking and financial services will be exposed, ultimately delivering customers with a more efficient, personalised and secure financial experience.aq
Published in The Express Tribune, December 16th, 2023.
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