Initiative: Digital Finance Innovation

About Digital Finance Innovation


Thanks to technological innovation, a wide range of crowdfunding, marketplace/peer-to-peer (P2P) lending and other online alternative finance platforms have emerged in the last years, slowly changing the way individuals and businesses access and invest money. By broadening investor access to projects that would otherwise not receive attention from traditional sources, alternative finance can contribute to narrow the financing gap affecting Small and Medium Enterprises (SMEs) and entrepreneurs, especially those at the early stages of business development. Alternative Finance can also provide individuals new options for accessing finance and for making investments.



Digital currencies are digital representations of value that can be denominated in legal tender, such as e-money, or not, such as bitcoin. This section comprises the entire possible spectrum of digital currencies, from cryptocurrencies and virtual currencies that are issued by private developers and are denominated in their own unit of account, to national digital currencies that can be issued by Central Banks.



Originally introduced as an alternative approach to payments in the context of Bitcoin, Blockchain and related Distributed Ledger Technologies (DLT) are now viewed as a solution for a wider range of transactions in the financial sector. Many financial institutions have chosen to cooperate in order to approach Blockchain technology and its potential, forming different consortiums and initiatives that will bring along innovations and process efficiency at different layers, such as automated clearing and settlement, derivative trading, identifying and tracking assets. Moreover, Blockchain technologies also offer great potential for applications, such as smart contracts, distributed registries of property and identity,the Internet of things, among others.


During the last years there has been rapid growth in the number of technology-based firms entering the financial services industry (i.e. FinTech). These firms are mostly startups trying to compete with traditional financial services firms in many different areas, mostly in consumer banking and payment services. Despite their growth and the amounts of venture capital invested in them, the real impact of these firms on traditional financial services is still uncertain. The evolution can lead to a rather collaborative interplay among FinTech firms and traditional incumbent bank or it can dramatically change traditional business models. This section focuses on this evolution as well as new trends in the FinTech ecosystems.



Using broadband to deliver financially services through digitally-enabled channels has the potential to address fundamentally the cost factors preventing financial inclusion: On the client side, high transaction costs due to the difficulty of getting to the points of service and in meeting documentation requirements; and on the provider side, the lack of economies of scale and the difficulty of obtaining reliable information on unbaked clients. The falling costs of broadband access and smartphones make it possible to envision a rapid rise in take-up and usage of mobile broadband over the next few years, facilitating digitally-enabled channels and applications that allow for innovations at the product, model and process level.