E-Finance: An Emerging Risk and a Possible Cause for Future Financial Crises

Abstract

Technological innovation has reshaped the way people interact with one another. In the distance past, people had to communicate face-to-face and had to be physically present for activities such as trade to occur. In the contemporary era, technology and internet has made it possible for economic activities to process without the need of individuals to be physically present. Not only has advanced technology reformed the function of economic activities but also financial interaction. The introduction to electronic finance (hereafter e- finance) rearranged the way financial system function. As defined by Allen, James and Strahan (2002), e-finance is “the provision of financial services and markets using electronic communication and computation”. Unlike traditional transaction which uses physical money as a mean of exchange, e-transaction replaced money with digital money (also known as e-money). Moreover, with the rapid technological development, debit and credit cards has been replaced by smartphones. In combination of both smartphones and e-money, payments are done through apps like Apple Pay, Samsung Pay, Android Pay and Alipay (Zhi Fu Bao). These payment methods are not only efficient but also convenient for consumers and financial system. Specifically, financial transactions can be easily tracked (hence more transparency) and faster processing time in contrast to having to queue at banks to make deposits or withdrawal (Shahrokhi, 2008). Regardless of the positive impact that technological innovations have on financial system, limited information on the potential negative impacts, particularly financial crises, is still absent.