Digitization has completely transformed almost all sectors of advanced economies in the last 20 years. It is rare to find an area that hasn’t been touched by digitization in some way or another. But, finance is different: not only has it been transformed by digitization, but a lot of what we take for granted in the finance world today wouldn’t even be possible without digitization. Every company from a one-person startup to the oldest institutions in finance has already adopted digital software programs to perform core functions.
In this article, we’ll go over the major impact digitization has on finance.
#1 The Ability to Analyze Large Amounts of Data
Finance, at its very core, is recording various pieces of data, validating them, performing different calculations, and then extracting various useful pieces of information that a business can use to make more informed decisions.
Digitization can completely transform this process. Years ago, employees would need to enter data into excel spreadsheets, validate them manually, write algorithms on a daily basis, sift through pages upon pages of entries, and more. It was exhausting, inefficient, and took a lot of time, money, and energy.
Things have completely changed with increasing digitization: now, data gets inputted automatically from various sources, highly intricate algorithms validate the data and make sure everything is within accepted parameters, ML and deep learning algorithms again perform most of the calculations and extract useful information, and you can easily look up any record you want in a matter of seconds regardless of the size of the database. Employees’ primary task has gone from doing menial work to acting in more supervisory roles over the algorithms.
#2 The Ability to Automate Crucial Tasks
In the previous section we mentioned how digitization means that you can ‘automatically’ enter data records into databases, but that’s not all: almost every facet of the financial sector has been heavily automatized in the last two decades:
- Banks use intricate algorithms to flag specific transactions as suspicious and then review them manually.
- Insurance companies now use highly intricate algorithms to automate the calculations and let computers come up with specific rates for individuals based on various parameters.
- Businesses have now automated various business analytics data points and have tools that automatically generate important reports on a daily basis.
All of these are just the tip of the iceberg when it comes to automation in the finance sector due to digitization, and it hopefully shows how important is digital transformation for finance companies around the world.
#3 The Ability to Share Information Almost Instantaneously Across Large Geographical Areas
Nowadays, finance companies rarely ever serve a small geographic area. Most operate across states and regions, and a substantial number work internationally across entire continents. But, this wasn’t always possible.
But digitization over the past four decades has changed all that. Transferring massive amounts of data instantaneously, analyzing it on the fly, coordinating with people all around the world easily, and updating hundreds of database records concurrently make it possible to provide excellent financial services possible never before.
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