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Financial Technologies in the Developing World. Modern technology has started a tidal wave of innovations in various tasks such as communication and research (Intelligence 2014). Our lives are currently massively reliant on technology developments and proceed to change as more demands appear (Anderson and Rainie 2012, p.18). Its results are particularly well-observed in the developing countries, which can integrate into the global business and develop further. Mobile electronics that accompany other technological advances are now broadly spread everywhere in the world (Mattila 2015). Financial technologies have evolved hugely over the past years. With the current development of smartphones, almost every electronic service can be accessed through the phones (Aram, Troiano, and Pasero 2012, p.2). Further, various companies have digitalized their operations, making the world more global (Loo, Mauri, and Ortiz 2011). Through the digital world, E-business has become increasingly popular, which directly affects global customers regarding financial services and distribution of goods and services (Laud on & Traver 2016). Greater connectivity and ease of operations by such services as paying by credit cards is significant and popular among many people. However, with the continued and projected development, the lack of use of local banks and automated machines might lower the productivity of financial institutions considerably. The disruption of financial institutions through new technologies such as mobile banking and Bitcoin is thus on the rise and has different effects on developing countries.
Financial institutions play a significant role in the development of any economy. First, they enhance liquidity by providing a means of transferring resources from savers to borrowers, which is remarkably the most significant long-term source of funds (Todaro & Smith 2015 p.83). These institutions are widespread in all societies, giving people a chance to access information and services on a one on one basis. Further, the readily available resources enable the small enterprises to expand without having to accumulate loads of money required, and this does not only benefit the households but also stirs up more investments and more savings in the banks (Haufler 2013 p.12). This fact avails more funds to lend which gives entrepreneurs a source of capital to make more investments by taking advantage of opportunities as they arise, thereby inducing wider industrial development. To attain economic development, a country needs more investment and production (Bagautdinova, Gafurov, Kalenskaya, and Novenkova 2012, p.180). More so, financial institutions help in pooling risks by trading in derivatives, whereby they prevent price fluctuations from affecting small enterprises and guard them to grow (Goodhart 2011 p.136).
Nevertheless, the financial institutions extend credit to the government in the form of long-term loans and bonds to develop public amenities (Hardie 2012). It is through the public expenditure that the developing nations can get access to things such as transport networks for easy connection of the interior regions to cities and towns where markets for their produce are optimal. Also, the society can get access to quality health services. Healthy people remain productive and enhance more developments (Cour-Thiemann and Winkler 2012 p. 768). It is, therefore, hard to undermine the role of active financial institutions in contributing to government expenditure. Ultimately, through an active and productive society, the Gross National Products as well as the Per Capita incomes in developing nations increase and help to bridge the income disparities that exist in unbanked communities (Madura 2014).
The overall living standard improves because the dependency ratio is lowered and most people have a source of income to cater for their needs. Consequently, the government can invest in developments instead of spending money on the poor population (Madura 2014). That notwithstanding, the financial sectors bring together various significant leaders who include policy makers, economists, executives and consumer spokespersons to discuss occurrences and prospects.
Eroding the role of these economic sectors will, therefore, affect all areas of the society ranging from consumers who will lack means of protection, entrepreneurs, the government and other major financial stakeholders. This effect will eventually lead to mass losses and drawbacks in the society, as it is the nature of institutions in a nation that determines its economic performance way much more than other cultural as well as geographical facets. Financial institutions should, therefore, be taken care of to ensure that they do not just extract from the society, but act as a source of funds for development.
There are many impacts of new financial technologies in the Society. These may be either positive or negative depending on their effects (Faems, Visser, Andries, & Van 2010). A vast population has gained access to the financial system, including the ones dwelling in under-banked communities. Secondly, it provides a cheaper means of acquiring various products because businesses have improved their processes through electronic principles to charge lower prices as well as delivery costs. Thirdly, financial risk management has developed whereby automated machines can detect delays in payments and send warnings, and also financial supervisors can measure the magnitude of risks through the use of financial consumer data to enhance transactions transparency. According to Faems, Visser, Andries, & Van (2010), the increase in competition also avails a larger pool of options for consumers, which enhances liquidity in the overall system.
A research about financial development was conducted in Africa by House-Sorekemun (2016). The results showed how mobile phone penetration into Africa had stimulated commercial development, although it has borne inequalities in the same way. The technology has eliminated the traditional financial intermediary between various economic sectors. Mobile technology has enhanced not only communications but also money saving and transfer. The research indeed showed that such financial services had increased interconnections and the ease of transactions and access to financial services to a vast population (House-Sorekemun, 2016).
A deeper analysis by Zhou, (2011) illustrates how easy operations have become. Mobile phone owners can even create a false account or one owned by their operator, where they can store their money and access it through their handset any time. Also, users can cash in and out without walking to the bank, and only consult an agent for the system operations. Nonetheless, money transfer from one account to the other is easily done which has encouraged even transactions involving huge amounts of money to occur on the mobile phone (Merritt 2011 p.144). This fact has opened various countries in Africa to the outside world, whereby markets are easily accessed and goods purchased or sold online.
A recent article by Metz (2016) describes why the BitCoin technology will spread fast among the developing nations is a primary source of interest. It argues that bitCoin provides a better means of storing and sending money across boundaries with cheaper rates than other platforms. It has currently applied to the United States, one of the most developed nations, and its usage has been projected to rise in the coming few years. Reports from Nigeria as one of the developing countries, for instance, show how remote banking services are to a vast population. Only 38% of the population can access the services, leaving room for companies to develop digital currencies that will enable money transfers through the internet (Agwu, Atuma, Ikpefan, and Iyoha, 2014). Financial activists, Bankole, and Brown (2011) in Nigeria argues that as digital currency works well in the United States and Europe, then it is quite reassuring for developing nations. The huge steps undertaken are indeed expected to get Nigeria out of its poverty as well as expanding to the whole world in future. Nigeria has to move from the era of putting money in bags and sending them via buses to the recipient and move with the rest of the world into digitalization. They argue that they have dealt enough with risky processes of money transfers which hold great inflationary coinage and that they are ripe-ready for the BitCoin digitalization (Hileman 2015 p.92).
In as much as positive effects persist negative repercussions are also evident. As other emerging technological issues traverse the world, mobile banking leads among the major concerns. Tarafdar & Vaidya (2008) Argue that the consumer demand for mobile banking is apparently rising at a fast speed as mobile devices continue to spread and in affordable access, as compared to a decade ago, which is projected to cause a detrimental impact on revenues. Further, this will slow societal growth and development because these revenues are the main growth propeller.
According to Czinkota & Ronkainen (2011 ), global business to business payments is becoming increasingly popular as one of the major operations performed online. The process of identifying and matching buyers and sellers, creating electronic purchase orders, generating electronic invoices, and generating payments through the mobile phone is on the rise. Such transactions are being done using means such as prepaid cards which have significantly flourished in the recent past together with mobile wallets as well as displacing the role of financial institutions. An argument is evident that these transactions will create a lot of unemployment in the society.
Secondly, about the improvement of technologies is the rise of Information Technology experts, who keep learning new ways of operating the system. The cases of the rise of hackers and spammers may cause enormous losses of money for people who can easily access it through embezzlement. Developing nations with high rates of illiteracy might mainly fall prey to these financial predators and become devastated in future. Through digital advertisements and online transactions, one can easily tour and research for items or come across them whenever they are browsing. Meanwhile, advertisers may take advantage of the fact that site captures and attracts a buyer, design and promote their items where one may easily get interested and resort to their mobile cash transactions to purchase the item.
Fourth, the financial sector has undergone a challenge of maintaining the stability of their systems because, since the introduction of commercial technology, the mobile transactions have altered various operations hence shifting the equilibrium of value delivery. This fact has necessitated the formal and traditional economic sectors to reshape their ideas to remain relevant, which is quite a challenge (Schinasi 2009). Although the use of technology in finance or the services offered by the entrants are not contemporary, the current novel application together with the speed it is diffusing into the society broadens the wave and makes it a burden on the financial sectors. The fifth concern is the felony that will most probably crop up within units of the business. Employees may become inside threats because it is hard to draw a line between the possession and use of customers’ data as well as the limits on which to deny services to a particular client. Untrustworthy people will perform malicious trading activities and illegal actions in the name of fulfilling the client’s expectations. Such actions may pass without detection by environmental risk control measures, leading to tremendous losses to businesses.
Further, the potency of payments may be put to question by the various payments systems being developed and introduced in different countries. This fact will mainly affect international business deals whereby the parties involved will have to walk an extra mile in incorporating other means, which might cost them dearly. This fact will also affect the monetary policies and the currency exchange of each developing country.
The most significant risk that finance technology poses is the security of customers (Sen 2015 ). Investors who borrow from these alternative sources of fund expose themselves to greater risks than when using traditional banking systems due to issues of liquidity, because these means will transfer all risks to the investor who may not have a good understanding of their products. Also, trading platforms which have become very popular do not have clearly defined safety measures, which will expose the point consumers to high risks. Cyber-attacks are whatsoever the biggest threat because businesses are over-relying on technology and cloud storage. As mentioned earlier, there are Computer experts who may take advantage of this.
Additionally, the effects of BitCoin, in particular, are far more likely to impact the developing nations negatively (Krause 2016 p.32). It is liable to lead to the lack of a sound banking system in the countries where it will settle, sabotage the government’s operations, result in immense losses out of insecurity, and its high price volatility might affect those who store their money in it. Also, once a new user joins the BitCoin technology, their information is made public and can be accessed by everyone all over the world which has raised a lot of privacy concerns (Androulaki, Karame, Roeschlin, Scherer, and Capkun, 2013 p.35). To this end, one might have to hope that this is just a transitional phase that will lead to better means of money exchange.
Some of the recommendations as to how the negative impacts are however available and if implemented can neutralize the problems. Since technology has brought in remarkably better ways of doing things and making the world a better place, the acting parties should remain responsible for preventing damage and economic drawbacks in the society, while still embracing technology. The financial supervisors particularly those in the private sectors must launch battles against the over-reliance on mobile transactions (Casu & Gall 2016, p.21). Some of the things that would probably help include a dynamic group of people to restructure and enforce the standards of conduct as technology advances. This factor will mainly help in risk management whereby fresh entrants will be scrutinized as well uniformity of transactions maintained among the technological, financial services.
Secondly, financial supervisors should be equipped with adequate standards to monitor these innovations and mitigate risks. This standard will also help them to maintain the uniformity of internal operations across the nation as well as identifying loopholes. Thirdly, clear boundaries should be set within which financial practitioners should rightfully use customer data in their business transactions to build trust with point consumers as well as eliminate chances of theft within a business unit. The current standards did not totally provide for the continued advancement in technology analytics, hence may leave some loopholes.
Thirdly, the public and private sector should explore the financial sector transformation to enhance stability. Through this, they should set up a foundation for assessing financial technology innovations to identify the underlying risks or benefits, hence know what to put a stop to or put to work. Also, they should discuss ways of developing the initial financial structures to prevent overreliance on the mobile banking.
Finally, the developing nations should adopt a guarded globalization strategy to hamper the aftermath of the recent and fast rising financial technology. The most alarming issue is the national security concerns regarding the financial services across nations being politicized and drawing the host country backward (Bremmer 2014 p.104). They must be circumspect when opening for any online financial platform to operate in their countries, especially those involving cross-boundary transfers. They must learn where to put barriers and favor the local and traditional banks.
States of developing nations that have a high percentage of the population not accessing banks may have to walk an extra mile to ensure that these services reach all regions of their countries and with affordable terms. Furthermore, they should adamantly seek to reshape the traditional institutions to offer more flexible operations hence become more favorable. Nonetheless, the governments should set out to educate the public about the dangers and concerns tied with over-relying on the new financial technologies. This will not only boost the economic performance of the society or aid the government but will also protect individuals to maintain the privacy of their wealth as well as secure it.
In this new phase of the technological revolution, the less developed countries have experienced new, better and easier ways of doing things. In the 20th and 21st century, the development of technology has been exceptionally fast (Gutfleisch, Willard, Brück, Chen, Sankar, and Liu 2011, p.823). Recently, electronics companies have taken advantage of this venture by producing mobile devices that have reached a vast population. The technological companies are always producing something new in a bid to attain competitive advantage (Bailetti 2012, p.5). The society has improved their efficiency, speed and cost cutting in performing operations over long distances. Most importantly, the developing nations have had a chance of integrating into the world and expand their operations globally. This paper has delved into the new financial technologies, discussing the role of financial institutions in the society, and how the mobile banking technologies are slowly eroding them. Further, it has considered the implications of these technologies on societies of the developing nations, shedding light on the disruption of traditional financial institutions. To this end, it has given insight into ways of reducing the effects of these financial technologies, efforts which are meant to be undertaken by corporate governors, the state, as well as responsible financial supervisors.
It is worth noting the fundamental role of financial institutions in economies of the developing nations, whereby they act as a means of fuelling the small enterprises, with an eventual result of developing the whole country and improving the living standards of the people therein(Saunders, and Cornett 2012 p. 558). Secondly, the emergence of financial technology has had a positive impact on societies by enabling the less developed and unbanked communities to transfer money quickly and inexpensively. Thirdly, adverse effects of this technology have also been felt by communities, and they are projected to rise shortly as more financial technologies emerge and become increasingly popular. For instance, the role of banks is gradually losing meaning because e-commerce does not require their services. Consequently, they will lack funds which will hinder their lending services. Therefore, it is an awakening call to the governments of developing nations to limit the extent to which these technologies should take precedence by developing the traditional institutions as well as educating the public. We can only hope that in future, the financial technologies will be put under control just to supplement the traditional financial institutions but not erode their role.
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