JD Duarte explains the transformation of digital finance

The digitization of the economy has accelerated due to the COVID-19 health crisis. Among other challenges, the banking and financial sector is changing. Adapting to the new environment is essential for financial intermediaries. Those who were lagging behind in their digital transformation plans may have suddenly been left behind. JD Duarte, entrepreneur and business operations expert from Costa Rica, explains how digital finance is changing.

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

On the contrary, accelerating digital transformation goes beyond payments. Consumers are beginning to familiarize themselves with the use of applications, with which they manage all kinds of transactions and investments more efficiently. Thus, the model of super financial apps, which is already triumphing in Asia, is beginning to penetrate Western countries in the hands of Big Tech.

Digital change is also affecting how consumers obtain financing. Duarte explains that 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, growing at an annual rate of 29.7%.

Moreover, this process has important implications for financial inclusion. In regions that have traditionally been less banked in terms of physical offices, the use of mobile wallets is starting to be the norm. In fact, many African governments have declared these wallets essential services, so they have banned fees being charged to transfer with them.

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

Today, conventional banks represent only 72% of the total market value of the banking and payments sector, compared to 81% at the start of 2020 and 96% ten years ago. Big technology companies, like Amazon, Facebook or Ant Group, and payment platforms like PayPal or Square, have doubled their turnover in recent years.

Banks, e-commerce platforms, big tech, fintechs, social media companies and telecom companies are competing to become platforms through which users can buy a range of financial products, exclusively or in collaboration with third parties.

As experts see an increase in online shopping, they also believe the use of cash will see a noticeable reduction. Many people, amid the pandemic, have become accustomed to conducting financial transactions electronically. People now see much more value when they pay electronically and not in cash.

Their arguments point to the fact that people perceive cash as a carrier of germs and viruses, as it passes from hand to hand. Says Duarte, People are starting to realize that they can buy more online, and the same companies are asking for non-present sales patterns, so that in a non-face-to-face way they can transact. The demand for dataphones that allow customers to pay with cards is increasing.

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

Big Data in finance has simply become unavoidable. From private institutions to central banks, analytics solutions are increasingly necessary for anyone operating in the modern world, for better or for worse.

About Jose Daniel Duarte

JD Duarte is from Heredia, Costa Rica. He has been an entrepreneur and business owner for over 20 years and splits his time between his existing operations and finding new opportunities to invest in. When he is not devoting time to his business, he spends time with his wife and two children.