Going Digital With Your Finances: Benefits & Risks

With the turn of the 21^st century, almost everything has gone digital. Since the turn of the millennium, this decade has certainly been the era of digital transformation as every aspect of life has been influenced by technology in one way or another; and at the forefront of the global digital transformation, has been financial industry and sector going digital to ensure financial stability and inclusion.

The move towards digital payments and mobile money, and away from physical cash and banking services, offers people opportunities to change the ways that they can spend, save and manage their finances. From banking apps to fintech apps and mobile money for digital payments through to a variety of personal financial management services and apps at people’s disposal, everyday patterns of spending, saving and other forms of financial transaction have changed how people interact with, understand, or value financial management services for their personal use.

 

Ways to go digital with your finances

• Traditional (desktop/web browser) vs Social (apps, data-sharing)
  • Traditional: Traditionally, the basic way to go digital for one’s finances was the use of the desktop/PC using spreadsheet (typical MS Excel) for financial management. This means the data could be keep kept quite personal with storage of the information on the device but was also susceptible to data loss. However, this risk could be mitigated if one saves a copy of the document on cloud storage. Thus, resulted in using web-based applications to achieve the same objective. Alternatively, by subscribing to services such as Office 365 or by using Google Docs, one can enjoy the best of both worlds.

• • Social: The new way to go digital for one’s finances is the use of the mobile apps for financial management since it provides the opportunities for on-the-go financial management as well as data sharing and connectivity. The benefits for using apps means that one can track and monitor their expenses on-the-go; but this typically requires a lot of financial discipline. For the latter, this provides the opportunities for couples and families to share either some or all information for joint or collaborative financial management. Notwithstanding, this requires a significant amount of trust and maturity to navigate the risks associated with data sharing.

 

• Banking Services vs Alternate Financial Technologies
  • Banking/Financial Services: Almost all banks and financial services providers such as insurance companies, finance houses and pension companies have their respective apps for the benefit of their customers with options of self-service. From a personal perspective, one must use several banking/financial services apps to manage all facets of the one’s finances. To further complicate things, these financial services apps seek to provide various value-added services bordering on financial management and this can be overwhelming for an individual when one would want to use few apps to achieve his/her overall financial management objectives.

• • Alternate Financial Technologies: Alternative finance refers to forms of finance that are outside the institutional finance system of banks and capital markets. This is often synonymous with the term, “Fintech” – a portmanteau of ‘financial technology’, used to describe new tech that seeks to improve and automate the delivery and use of financial services. Fintech companies are often startups or more established financial and technology companies that are trying to improve upon traditional forms of finance by providing financial technology that enables transactions for consumers and businesses, or helps other companies manage the financial aspects of their operations. This is usually achieved through (but not limited to):
    • Crowdfunding platforms: to raise funding for start-ups
    • Cryptocurrency: digital cash to facilitate online transactions
    • Blockchain technology: a digital ledger in which transactions using cryptocurrency are recorded
    • Open banking: providing third parties with access to bank data to build applications, such as budgeting and money management tools
    • Insurtech: technology to streamline the insurance industry
    • Peer-to-peer lending: facilitating lending outside of banking

Notwithstanding, the major risk of dealing with FinTechs is the concern that the fintech landscape is less regulated than the traditional financial services industry. Notwithstanding, fintech companies are still bound by many of the same obligations as their institutional counterparts. As with any new industry, regulation in fintech will continue to evolve over the next few years.

 

Benefits of Going Digital with Your Finances

• Convenience: Principally, the ease of conducting financial transactions is a major motivation to go digital as one does not need to carry cash and/or even queue up for ATM withdrawals. One has the freedom to transact whenever and wherever especially when on-the-go such that you don’t have to be physically present to conduct a transaction or be forced to do so only during office hours. There is also the element of safety amidst the ease and freedom to transact.
• Storage: With a plethora of apps and services that allows people to store their financial information on the cloud, storage is not a concern; especially, the fear of losing one’s data resulting from damaged devices, replacements and/or upgrades.
• Financial Inclusion: The abundance of financial technology solutions from basic USSD to web-based apps have ensured that majority of people can have access to financial solutions. The dominance of M-Pesa in Kenya and the growth of MobileMoney in Ghana show technology can foster financial inclusion.
• Affordable yet providing cost-savings: With lots of apps and services that allow people to manage their finances, people can choose between free or paid financial solutions. Additionally, people can choose which solutions to use based on affordability or their budget being met.

 

Risks of Going Digital with Your Finances

• Force Majeure (Environmental and/or Systemic): For all the strides technology has made to our lives and the financial industry, all technology including FinTech can still be impacted by environmental disasters. However, FinTechs are generally more susceptible to “Systemic Force Majeures” such as power outages, network challenges, unexpected system glitches from upgrades and patches, hacking, etc.
• Fraud: A significant challenge of going digital with your finances is the risk of fraud, identity theft, phishing, and scams. In as much as FinTechs try to protect their systems and solutions, one must pay attention to the use of their regular passwords, one-time passwords, PINs, and two-factor authentication towards enhancing the security associated with going digital with your finances.
• Consumer Data and Privacy: A modern concern of the FinTech and Tech age is the issue of consumer data and privacy (or lack of). Many tech companies have been accused of selling data of consumers and customers to third parties. While many FinTechs take steps to reduce the risk of this concern, the issue of consumer data and privacy will for the foreseeable future continue to loom over the heads of consumers and customers of digital technologies.
• Inadequate Customer Service Support: Although many technology solutions pride themselves in providing customer service support in a variety of ways, including bots; consumers are often unsatisfied with the various mediums of such customer service due to various reasons such as:
  • non-real time responses with chat bots
  • the occasional unavailability of the customer service support
  • the seemingly impersonal nature of customer service support persons
  • customer service officers seemingly unable to assist or provide answers whether in real time or later.

 

The convenience of personal budgeting, on-to-go expense tracking, online banking, paying bills, earning money (from social ecommerce) and getting paid whether from PayPal and Bitcoin has significantly impacted the lives of individuals, entrepreneurs, and small business owners. Using digital technologies to manage finances presents us with endless possibilities every day. Sometimes we don’t even realise all the effects that technology has on us and how we depend on it for our daily lives. However, in the 21^st century, the notion of going digital with our finances is not option but an imperative; but this should be done after careful weighing the benefits and risks to one’s advantage.

Written by: Bernard Adu-Gyamfi

  Business Manager, Energy Finance & Risk Analyst/ Digital & Media Consultant

Featured in Glitz Africa Magazine issue 28