What is digital finance?
Digital finance is the term used to describe the impact of new technologies on the financial services industry. It includes a variety of products, applications, processes and business models that have transformed the traditional way of providing banking and financial services.
While technological innovation in finance is not new, investment in new technologies has substantially increased in recent years and the pace of innovation is exponential. We now interact with our bank using mobile technology. We make payments, transfer money and make investments using a variety of new tools that were not there few years ago. Artificial intelligence, social networks, machine learning, mobile applications, distributed ledger technology, cloud computing and big data analytics have given rise to new services and business models by established financial institutions and new market entrants.
All these technologies can benefit both consumers and companies by enabling greater access to financial services, offering wider choice and increasing efficiency of operations. They can also contribute to bringing down national barriers and spurring competition in areas such as
- online banking, online payment and transfer services
- peer-to-peer lending
- personal investment advice and services
Digital finance package
The package includes a digital finance strategy, and legislative proposals on crypto-assets and digital resilience, and a renewed retail payments strategy. The goal is to create a competitive EU financial sector that gives consumers access to innovative financial products, while ensuring consumer protection and financial stability. The package supports the EU’s ambition for a recovery that embraces the digital transition. Digital financial services can play an important role in modernising the European economy across sectors and turning Europe into a global digital player.
By making rules more digital-friendly and safe for consumers, the Commission aims to exploit synergies between high innovative start-ups and established firms in the financial sector while addressing associated risks.
Digital finance outreach 2020
The digital finance outreach 2020 is a series of events organised in collaboration with the Member States in February-June 2020 on fintech and digital innovation in the financial sector to prepare the new EU digital finance strategy. In parallel, the European Commission organised online roundtable discussions with key stakeholders, open to the public.
In the context of the digital finance strategy for Europe, the digital finance outreach 2020 events will continue in order to bring the proposed actions closer to the citizens. They will give the opportunity to stakeholders and the public to listen to the European Commission’s experts presenting the new digital finance package and answer to their questions.
- 28 October 2020: Webinar on the proposals on markets in crypto-assets and on pilot regime for market infrastructures based on distributed ledger technology
- 11 November 2020: Webinar on the proposal on digital operational resilience
Commission's action plan on FinTech
In March 2018 the European Commission adopted an action plan on FinTech to foster a more competitive and innovative European financial sector. The action plan sets out 19 steps that the Commission intends to take to
- enable innovative business models to scale up at EU level
- support the uptake of new technologies such as blockchain, artificial intelligence and cloud services in the financial sector
- increase cybersecurity and the integrity of the financial system
These initiatives mainly aim to enhance supervisory convergence toward technological innovation and prepare the EU financial sector to better embrace the opportunities brought by new technologies. This should enable innovative digital finance solutions to be rapidly rolled out across the EU and benefit from the scale economies of the single market, while preserving financial stability and ensuring consumer protection.
The action plan is part of the European Commission's efforts to build a Capital markets union and a true single market for consumer financial services. It is also part of its drive for a Digital single market.
The digital euro, a digital form of central bank money, would offer greater choice to consumers and businesses in situations where physical cash cannot be used. However, the digital euro would be a complement to cash, which should remain widely available and useable.
The European Central Bank (ECB) and the European Commission services are jointly reviewing at technical level a broad range of policy, legal and technical questions emerging from a possible introduction of a digital euro, taking into account their respective mandates and independence provided for in the Treaties.
In January 2021, the Commission and ECB agreed to work together to analyse various design options and the related regulatory implications of the digital euro.
On 14 July 2021, the ECB decided to launch the investigation phase of the digital euro project. The investigation phase consists of looking at the various design options, user requirements and at how financial intermediaries could provide services based on the digital euro. During this phase, the Commission will continue to closely cooperate with the ECB on analysing and testing the various design options in view of policy objectives.
In the context of the EU’s digital transition, the digital euro could support the EU’s digital finance and retail payments strategies described above, given its potential as an additional, innovative and safe means of payment.
The digital euro could also increase the international role of the euro and support the EU’s open strategic autonomy (see the Commission Communication of 19 January 2021).
- Statement by the European Commission on the digital euro (14 July 2021)
- ECB press release on the digital euro (14 July 2021)
- Joint statement by the European Commission and the ECB on their cooperation on a digital euro (19 January 2021)