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The pandemic has been a technological catalyst. It has caused change on a greater scale and at a faster pace than any firm’s planned IT strategy or any regulatory initiative. Initial lockdown measures to manage the pandemic caused years of change to take place in months, as firms moved to, and continue to operate, large-scale remote working. Some firms were better placed to handle this rapid increase in use of technology and digitalisation of services and delivery, others less so. Disruption by new technologies became more palatable during the pandemic, resulting in faster adoption and progress, but introducing risks that will outlast the pandemic and its after-effects.

The pandemic also saw greater cooperation between industry and regulators to help consumers. And it has provided added impetus to governments’ and regulators’ plans to encourage moves towards digital finance, including digital currencies, and to adjust laws and regulations to reflect these new forms of finance and the widening use of technology. This paper touches on a number of key themes in the growing stream of outputs from policymakers and regulators.

Developments in digital finance could transform how consumers and businesses make payments and raise finance and could assist economic recovery. Regulators recognise the benefits of new technologies and the digital society but are concerned about new and heightened risks. They are seeking to encourage market entry by new types of firms and technological tools – BigTech and FinTech – but are conscious of the need to redefine the regulatory perimeter and to avoid an unlevel regulatory playing field. They are concerned about the size and scale of infrastructure providers and the potential implications for competition and resilience.

Traditional financial services firms are making increased use of technology, via third-party suppliers, joint ventures or in-house development. The use of distributed ledger technology (DLT) is taking off, as are artificial intelligence (AI) and machine learning (ML), with a new generation of advanced analytics and AI – “AAAI” – tools being developed. New technologies are evolving fast and the “internet of things” – including mobiles and watches – is enabling greater access. The next wave of innovation promises not only to make things even faster, smaller and better but also to add the sense of a “human” touch to digital functionality, to meet customers’ psychological need to feel they are interacting with people and not cold machines.

The trend in digitalisation – doing more things in a digital way rather than on paper or face-to-face – has accelerated rapidly. Use of cashless payments has increased, new forms of cashless payments, digital currencies and crypto-assets are emerging, and there has been an increase in online investment tools. Communications are becoming more immediate. Online descriptions of services and products can be dynamic and customised, and therefore more engaging and educative.

Increased digitalisation and new technologies can result in better experiences and outcomes for consumers, but the regulators wish to mitigate risks such as aggressive selling practices and the biased (intentionally or otherwise) presentation of product information that could prevent consumers making informed decisions. More generally, existing conduct rules need to be re-thought to recognise the fundamental shifts in the construction of financial services and products, and how they are delivered and communicated. There are specific concerns about vulnerable and financially excluded customers, who may fall even further behind in an increasingly digital world, and that digitally excluded consumers should not become cash excluded. Firms need to consider whether changes to business practices are to the benefit of all customers (or, at least, not to their detriment), in addition to benefits to the firm itself. Firms need to balance their own commercial interests with those of their end customers. The fundamental building blocks underpinning all technologies and digitalisation are infrastructure and data. Firms need to ensure the integrity of exponentially expanding databases and that they have the expertise to store and analyse them, whether in-house or via outsourcing to third parties. They need both to protect customers’ and market confidential data and to share them in order to deliver services more efficiently and across borders. They need to use data ethically and to have robust governance and controls in place regarding their use of data.


The excerpt was taken from the KPMG thought leadership publication entitled Accelerating digital finance: The new reality publication series.