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Digital finance: challenges and opportunities

Hybrid format - Rome , 15/06/2022, National Roundtable

Over recent years, new technological instruments have accelerated the digitalization of finance, radically changing the user experience and shaking the historic foundations of sector institutions. From the exponential growth of FinTech to the advent of digital currencies to the new frontier of the metaverse, the transformations have been far-reaching. They have compelled banks and financial institutions to retool business models for a future in which the very definition of finance will have changed with the entry of new players from a range of sectors.

The main issue on the table is who will be drawing the map of the new financial system and with what means – FinTech with the help of Big Data, or large international institutions with their proven experience and solid organization, or regulators?

In the increasingly decentralized world of finance, the role of users should never be underestimated. Users can become the protagonists of a digital era that has already changed daily life and reduced the utility of intermediaries; at the same time, however, developments have exposed users to considerable risks, starting with those associated with the use of their data. Hence, the need for legislation aimed at adapting the rules to a rapidly evolving system where questions of jurisdiction regarding the activities of groups (groups that are present more on the web than in the physical world) remain unresolved.

Moreover, the transition toward the finance of the future, like all transitions, will have desired and undesired effects. New opportunities for growth and development for all in the production and distribution of goods and services will abound, but only on the condition that new collaboration paradigms are put in place.

The digital finance ecosystem is based on pervasive technologies that involve all credit concession phases. Innovations encourage the allotment of resources for undertakings with clear growth prospects and the increased liquidity necessary to make markets function, thanks to technology’s capacity to aggregate and redistribute economic risk. The development of financial market innovation tends to come with higher growth rates, which has positive effects on the overall society, not least by ensuring access to the financial system itself.

Nevertheless, only by managing risk more effectively, preserving financial stability and protecting end-users – all without blocking innovation and progress – can the challenges be met and the opportunities offered by the changes underway bear fruit.