Before Covid-19, digital finance was already changing at a fast pace. And since the start of the crisis, there has been an increase in government financial interventions and this is expected to continue post-the-pandemic. A changing attitude towards data is also expected to have a big effect on finance.
Over the past couple of months, Covid-19 has had a big impact on the global economy, and in turn digital finance. These are what to expect at the end of the crisis.
1. Changing attitudes towards Data
Data debates have always been about issues of privacy and if people are happy with using their data for platform services. Now, the discourse is changing. Various European governments are presently looking at the possibility of tracking health, location, and other personal data for monitoring, control, and personalised health advice on Covid-19. There are other instances where data sharing could be beneficial during a lockdown. Serious liquidity issues arising from the lockdown have shown the need for quick credit checks. Therefore, platform data may prove to be valuable where financial data is not readily available.
Considering the challenges we’re facing, extensive data sharing may be the norm for now, even though data protection and usage are vital ultimately. It is also possible that, after the pandemic, people may see data in a new light by reconsidering its value, the likely benefits of sharing it, and the need to protect us all from data abuse. This may give rise to new business models, for instance, data guardians (a role banks are clearly in a great position to carry out). The acceleration of the creation of legal standards to regulate data sharing and protection is another likely outcome.
2. Cybersecurity
As more people work from home, there is an increased reliance on national and corporate network infrastructures. With a lot of resources reassigned to get things moving, businesses, and the health care sector, are at growing risks of cyber-security incidents like data leaks and ransomware attacks, as well as the spread of fake news. Maybe it is all about creating security gaps that can be exploited later, but to guard against this threat, it is expected that cybersecurity will move to the top of the agenda for policymakers. And as this is a borderless crime, at the international level is where it’s best to fight it. The EU might set up an agency at its own level but the cooperation won’t be as deep as what we have in finance and the markets.
3. Inequality and Financial Inclusion in Focus
The pandemic has revealed the disparity in society. Digital financial institutions will probably be asked to strengthen their drive towards financial inclusion by making it easier for temporary workers, the self-employed, as well as SMEs (Small and Medium-sized Enterprises), to access financial products. Limited availability of financial data coupled with the huge costs of processing them contributes to delaying access for these groups. Supplementing financial data with an array of non-financial data sources could be a solution to this problem.
4. Less Foreign Dependence
Covid-19 has shown how fragile governments can be, so both the authorities and businesses will be looking for less cumbersome cross-border supply lines and reduced foreign dependencies. However, with governments now realising the importance of high-quality telecoms infrastructure to enable workers to work from home, countries like China; leaders in the required 5G technology, will know they are in a good position to negotiate.
Finance is now a complex cross-border business with connections ranging from financial ties to supervision and IT outsourcing. Authorities were already studying these connections, which may yet come under intense scrutiny post-Covid-19. Whether bigtech will continue to play a role in finance remains unclear with Europe’s growing criticism of bigtech before the pandemic. However, one thing is clear; Europe’s realisation that major digital platforms have become an integral part of daily life especially in this period of lockdowns.
5. More government involvement
To a certain degree, the involvement of government in the economy, as well as the financial sector, will most likely continue. With changes in the geopolitical scene before Covid-19, policymakers were already coming to terms with the strategic role of essential domestic infrastructures such as payments and communications. And since the European Commission has already identified data as a strategic priority, governments are finally waking up to the importance of data. In finance, governments have once again solidified their roles with the setting up of large guarantee schemes to help businesses survive the crisis.
The reality is, it will take a long time for governments to start reducing their levels of intervention in finance and the economy at large. And this will probably bring back the debates about the division of labour in finance with regards to private and public sectors, once this crisis ends.
6. Faster adoption in Retail
The retail sector is expected to adopt digital finance technologies at a fast pace after the pandemic. Many people have been left with no other option but to become used to doing business digitally, for instance, through video conferencing and using contactless modes of payment.
There is an expectation of rapid acceptance of identity verification via video calls which might be a boost for digital-only financial institutions, and probably be the death knell for brick-and-mortar financial institutions.
Final Thoughts
We have to be proactive in thought and our actions. The coronavirus pandemic is a massive shock that caught us all napping. However, we’ve started to notice a change in the way we collaborate; the public and private sector partnership in finance, the changes to worldwide interconnectivity, the importance of improved cybersecurity collaboration, fast-paced digitisation, better focus on financial inclusion, and a change in the way we see data. Indeed, policymakers and financial institutions need to start thinking about these all-important factors.
