Digital finance: the transformation of the financial market

Digitalization has a major impact on the financial market and banks and will continue to drive many changes in the future. Digital finance encompasses all these steadily advancing processes that are transforming the financial sector. What exactly does this mean? And how are you affected as a private client? Below we explain the term, highlight the challenges for the financial sector and what it means for you as a private individual.

The term digital finance describes the migration of the financial market or its functions to the digital world and is mainly used in the context of companies and public authorities.

Thanks to digitalization, clients can now open a bank account digitally within minutes and carry out their banking transactions around the clock, regardless of branch opening hours. The basic functions of the financial system such as paying, saving, investing and financing remain the same, but the place where this happened has shifted from the analog to the digital realm.

Important drivers of digitalization in the banking sector are new technologies such as data analysis, artificial intelligence or cloud computing. They allow companies to process large amounts of data quickly and to offer new, customized services. Banks can, for example, make personalized recommendations for investments and asset optimization based on an individual’s investment profile and behavior as well as respond and act with greater agility thanks to digital platforms and processes. For example, they can get in touch with clients faster and more easily, evaluate their needs and respond to themaccordingly. Trends such as mobile payments have also become possible thanks to digitalization and are now established.

However, technological change does not only bring advantages. When it comes to the risks involved, security is the overriding issue, with criminals constantly trying to get hold of passwords or access credit card information. That’s why cybersecurity is an increasingly important topic in banking. Learn more about cybersecurity and how to protect yourself against cyberattacks in our article.

What exactly is the difference between digital finance and digital banking? In everyday life, these terms are sometimes used synonymously. But that’s not entirely correct. Whereas digital finance affects the financial industry as a whole, digital banking can be considered as a subcategory of digital finance. Digital banking is in turn composed of two categories and refers solely to the processing of banking transactions. Put simply, it is defined as follows:

The difference between online banking and mobile banking is that online banking refers exclusively to interactions with a client’s own bank via a computer such as a laptop, PC or tablet. By contrast, the term mobile banking covers transactions executed on a smartphone or tablet, typically via an app provided by the respective financial institution.

Possible applications of digital banking include all financial services that are carried out online or on mobile end devices. These include transactions such as the transfer or trading of securities, currencies and assets or crowdfunding. Typical digital banking applications include e-banking, mobile banking apps or payment apps like TWINT.

Digital finance does not just affect bank customers in the context of digital banking – it includes all areas of life connected with finance and the transformation process brought about by digitalization. This includes the subject of digital estates. We all leave behind a digital footprint. For example, we surf the internet, use online banking, invest in digital currencies, send emails and store vacation photos in the cloud. Unlike physical goods, the settlement of estates in the digital realm is not yet clearly regulated. Learn more about how to deal with your digital estate in our article “How to make arrangements for your digital estate”.