Digital Economy

Elke Holzer anticipates two long-term trends in digital healthcare:
“First, there are going to be more and more virtual interactions
as well as telemedical services for patients. And second,
a new role for digital health is evolving: No longer just a secondary
concern, it is becoming a key component in both the
fight against COVID-19 and in maintaining day-to-day operations
in the health sector.”
The rapidly advancing tide of digitalization is now also being
felt in the banking and financial services sector. Dr Hannelore
De Silva, senior scientist at the WU’s Institute for Finance, Banking
and Insurance and the Research Institute for Cryptoeconomics,
provides insight into the parameters governing the digital
transformation of banking: “Digitalization is also having a
significant impact on banking practices. Consumers love being
able to make money transfers or payments with a few clicks
on their smartphones. Increasingly, small private investors are
able to participate in the international financial market and to
trade in stocks and more complex products. But also people who
have previously been excluded from the financial sector can now
open a bank account more easily thanks to digitalization and
smartphones. Often this financial
Financial
inclusion can
improve living
conditions in
developing
countries.
inclusion can drastically improve
economic living conditions in
developing countries.” However,
the digital transformation will
also continue to significantly
shape the business of banking
itself. So-called open banking
and the masses of available customer
data make it possible to
design highly targeted services.
De Silva believes that algorithms
could theoretically recognize whether someone needs a shortterm
loan or might be interested in a certain investment because
they have gathered together some savings.
Traditional banks have to reconcile
close customer relations with digital services
How are traditional banks coping with the demands of new
technologies? De Silva points out that banks are generally
subject to very strict regulations. Traditional institutions still
maintain a large network of branches and score highly in terms
of personal and long-term customer relations. Banks may also
be more reluctant to utilize new technologies due to stringent
compliance requirements. De Silva reminds us that digitalization
also brings new risks, and that great care is required when
handling large amounts of sensitive data.
She goes on: “It is important, however, for traditional banks
to keep abreast of changes and constantly expand and improve
their capabilities and services. Often, it may be a good idea to
achieve such goals through judicious partnerships. In this way,
the reputation and established customer base of these banks
can be combined with the skills of innovative and flexible IT
companies.”
Specialized start-ups as innovative providers
of financial services
In recent years there has been an explosion in the numbers of
fintech companies. According to De Silva, these are often young
enterprises that offer digital financial services while maintaining
a skeleton staff. They develop very special products and
operate without any branches. Such businesses, which are of
course highly flexible, hire employees who specialize in artificial
intelligence, big data analytics and cloud computing.
Increasingly, they are competing with traditional banks for
customers.
But De Silva also sees large tech companies such as Apple, Amazon,
and Google as potential rivals to existing banks: “These
big tech firms offer digital banking services and payments, and
enjoy an incredible head start due to their enormous volumes
of customer data. At the same time, such companies often form
partnerships with established banks, allowing them to offer
new services and convenient payment solutions. In this way,
fintech firms don’t necessarily function as banks themselves,
but often team up with existing banks.”
Peering into the future:
The digital euro as the currency of tomorrow
Taking a look at the road ahead, Hannelore De Silva sees the
European Central Bank (ECB) as bearing a great responsibility:
“The ECB is currently investigating the possibility of creating a
digital euro. The Federal Reserve has also started a dialogue on
its money supply, and in China, the digital renminbi is already
a reality. Due to the increased emergence of electronic wallets
and payment options via smartphones, and also in view of the
growth of cryptoassets such as bitcoin, central banks are being
called upon to keep up with events and not abandon the field of
digital payments to private companies or initiatives. The success
of the digital euro will largely depend on how secure, intuitive
and versatile it is to use.”
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Dr. in Hannelore De Silva ist Senior Scientist am Institute for Finance, Banking and Insurance der WU
und am Forschungsinstitut für Kryptoökonomie tätig. Ihre Forschungsinteressen umfassen dynamische
Modelle der Spieltheorie und agentenbasierte Simulationen.
Dr. Hannelore De Silva is a senior scientist at the WU’s Institute for Finance, Banking and Insurance
and at the Interdisciplinary Research Institute for Cryptoeconomics. Her research interests include
dynamic models of game theory and agent-based simulations.
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