The chapter presents current issues in innovative modernization of financial intermediation. Development of financial innovation in recent years has led to significant structural and functional changes in the system of financial intermediation. New technologies open broad prospects allowing the radical reduction of the costs of information transmission and processing, while exacerbating competition and stimulate the emergence of new financial intermediaries. This chapter analyzes the debate on the theoretical understanding and analysis of financial intermediation, the disruptive technologies influence the economy with focus on organizational changes in financial markets, the use of digital currencies, exploration of blockchain technologies applications, etc. The chapter discusses how technologies have changed the market and the perception of customers as they foster entrepreneurial creativity and disrupt existing financial markets through an introduction of innovative business models of modern credit institutions.
TopIntroduction
The world has entered a new phase of development known as the “digital revolution” - mass introduction of big data and computer technologies. The observed changes in the world are defined as “digital society”, “digital civilization” and “digital economy”. The latter is a response to the 4-th industrial and technological revolution global challenges. Digital economy was presented at the World Economic Forum in Davos and the G-20 Summit in Hangzhou as a driver of economic growth.
Global trends in the development of financial markets (structural changes in the world economy, the high volatility of national currencies in emerging markets; financial globalization; increased competition in financial markets; the development of information technology, financial innovation and financial engineering; accumulation of risks and tightening regulation after the crisis) influence greatly the domestic economy. Actively developing trend on digitalization the economy will certainly have a positive impact on transparency of business environment.
Dynamic changes under the influence of technological revolution in financial intermediation are seen in the banking sphere: 1) automation of management and accounting; 2) electronic money transfer records on magnetic and optical media; 3) all payments transactions are carried out on the basis of information and computer technologies (ICT).
Promising ICT utilization in banks is to develop remote customer service channels (including automated electronic offices with customers using robots, biometric data, identification of customers by voice, the retina of the eye, the shape of the lips and other individual characteristics). Private customers of banks use plastic cards, mobile phones, computers or Internet banking in order to accelerate, reduce the cost of providing services and improving the safety performance of operations for banks and their customers.
The digital revolution rapidly burst into such a conservative area, as the world of money. Truly revolutionary development was the emergence of the new alternative forms of money, called “electronic”, “cyber”, “digital” and “virtual”. The emergence of private digital currency is associated with the development of the Internet industry, cost optimization, e-commerce companies (Aliexpress, Ebay, etc.) and the emergence of the major international payment systems (ApplePay, SamsungPay, LGPay, AliPay, etc.). However, some experts consider the private digital currencies (bitcoin, litcoin, etc.), on the one hand, as a tool of the Internet industry, and as an instrument which allow to optimize tax deductions, develop the shadow economy, drug-traffic, and loss of influence in the market of traditional currencies (US dollar, Euro, Pound sterling, Japanese Yen etc.) on the other hand.
However, it is important to emphasize that digital currency is only one element of modern payment and settlement systems. The emergence of new digital currencies involves the development of norms and rules regulating their use; information infrastructure; definition of information security issues, regulation of cyber-risks; training and education in the field of information technology and improving the financial literacy of the people; formation of research competences etc. It requires thinking in terms of opportunities and risks for human beings and society in general, as well as practical use of mechanisms and establishment of digital platforms.
The emergence of digital currencies involves the development of a regulation; creating an information infrastructure; information security, regulation digital risks; retraining and improving the financial literacy of the population, etc. In this context, a number of central banks have started developing their own (national) digital currencies (Bank of China, for example). The Parliament of Japan adopted a law in 2017, under which digital currencies received the status of legitimate money. Now bitcoins are used for payments in cashless form through the system of electronic payments and settlements. Regulators believe that the use of digital currencies will improve security, reduce the cost of cash emission, improve transparency of calculations, etc. But is it really? How does the digital economy affect the scope of traditional money?