Digital Finance

Low interest rates create digital finance opportunities

Digital Finance

Coronavirus pandemic has led to a decrease in the interest rates in many different countries of the world. The banks are cutting interest rates due to the governments’ attempts to support the economy. The interest rates are now applied to cover the loans of trusts and individuals. The measures applied by world banks are aimed at maintaining business and consumer confidence, providing financial stability and supporting the cash flows of households and companies.

People are now choosing digital finance providers over traditional payment methods. New technologies can improve the financial system and make financial services more accessible. 

The lowest interest rates in history

In the United Kingdom, the interest rates are now at the lowest level ever. At first, the Bank of England announced the cut of the base rate from 0.75% to 0.25% at the beginning of March. Later this amount was reduced to 0.1% which is the lowest number during the 325-year history of the Bank. The Bank of England also made the announcement that the UK holdings and corporate bonds will be increased by £200 bn.

The lowest interest rates in history
The lowest interest rates in history

In addition, the Bank created the funding scheme to support medium and small businesses. The new scheme encourages lenders to provide loans to companies at low prices during the financial crisis. The plan was coined on the basis of the previous financial strategy developed in the year 2016 which was successful. Four years ago, via cheap business loans, £127 bn was provided to the economy. The new scheme is expected to bring about £100 bn in 2020. 

These emergency steps were made to decrease the mortgages for the homeowners and support the borrowers. According to the Moneyfacts, the UK borrowers who have to pay mortgages of £100,000 over the next 25 years will pay £30 less per each month. However, the changes will not be applied to the fixed-rate mortgages that comprise the largest part of mortgage loans in the United Kingdom. 

Convenience and liquidity

The financial analysis of the last ten years has shown that the interest rates decrease on every bank account, regardless of the term of the deposit. When the long-term accounts stopped bringing profit, the investors’ focus of attention shifted to the short-term ones. 

Liquidity
Liquidity

In the United Kingdom, deposits with the opportunity to have instant access to money comprise 72% of the overall stock of money. The reward for long-term deposits which is now at the lowest point leads to inconvenience and liquidity issues. As a result, digital finance and other innovations in financial technologies are now coming to the fore. 

Nowadays the public banks have to compete with the services for deposit holders which are more convenient and provide more opportunities for payments and other cash operations. Liquidity is also a huge plus in times of crisis. The concerns about the credit risk connected with the new providers may arise, however, the deposit insurance solves the problem. 

The households that are targeted at receiving revenue at the cost of losing liquidity are looking at such options as retail investments instead of creating the savings accounts.

Investing in stocks, bonds and other securities not only creates convenience and liquidity but also offers opportunities for the providers of digital services. During the time when the interest rates remain at a low rate, the customers will give preference to digital finance providers and, accordingly, liquidity and convenience, over the public banks. 

Digital finance

Digital finance
Digital finance

Let us have a closer look at the providers of financial services. Digital finance is a term that includes a wide range of services that are applications, business models, and processes. Traditional payment methods are slowly disappearing, as we begin to apply artificial intelligence, mobile applications, machine learning, social networks, distributed ledger technology, big data analytics, cloud computing and other innovations of the 21st century.

Nowadays digital finance is concentrated on three important points of finance: cybersecurity, monetization, fintech and the enhanced financial ecosystem. The innovative technologies create more opportunities for the financial sector making the payment processes more convenient and efficient and providing more choices. Innovations will be useful for online banking, investments and peer-to-peer landing.