With the rise of digital technology and increasing connectedness of people, it has become crucial for customers to be able to use digital tools in making credit-related choices [1]. Nowadays, banking digitalization is reshaping the way people are provided with access to credits, making it necessary to talk about digital financial competency instead of traditional financial literacy [2]. However, even though this competency is becoming more crucial for customers, there are still many hindrances that stop people from making informed decisions about credits online, including low digital skills, cognitive biases, and lack of understanding of complicated financial products [3]. In this light, it is important to review major trends, challenges, and benefits connected with digital financial competency and credit decisions. An organized literature review was conducted utilizing thematic analysis of peer-reviewed research conducted during the last 10 years [4]. The research study utilizing thematic analysis helps in identifying trends and difficulties confronted along with the advantages available associated with digital financial literacy in credit decision making. Significant trends found out in the review include use of digital financial education, use of fintech technology, personalized finance messages, and use of digital platforms to access credit [5]. The problems reported in the review include lack of digital literacy, information overload, concerns relating to data security, reluctance in adoption of technology, and cognitive biases [2]. Advantages that the review highlights include improvement in decision making, access to credit, reduced risks, inclusion in finance, and responsible borrowing [1]. The study emphasizes the need for integrated digital financial education approaches that promote credit issuing as well as financial resilience and competitiveness in a changing economy [5]. In this respect, it forms a good basis for creating effective practices in digital financial competence that fit the requirements of financial transformation in modern times [6].
Historically, financial literacy was primarily viewed as the capacity to comprehend elementary financial concepts like budgeting, saving, and interest rates [7]. The rapid digitization of financial services has drastically changed this perception. Digital banking, mobile payments, online lending, and algorithmic credit scoring have established a new condition where it is necessary to incorporate not only financial knowledge, but also digital literacy and skills to operate in a complex digital financial environment [2]. Modern digital financial literacy is increasingly acknowledged as an independent concept that is different from traditional financial literacy [8].
Digital Financial Literacy (DFL) originated as an extension of the notion of traditional financial literacy. Traditional financial literacy is a mixture of finance-related skills, knowledge, and attitude needed for making reasonable decisions [9]. Due to the advances in digitalization, experts note that conventional financial literacy is being slightly modified. DFL is regarded as a digital extension of the concept of financial literacy, being the combination of financial literacy with digital skills, or extending the concept of financial literacy by introducing digital features [10].
In the modern economy that is driven by globalization and digital technology, digital financial competence becomes a necessity for participation in financial markets and achieving good lending outcomes. Adequate and well-planned digital financial education plays a signficant role in achieving such aims that are important for customers in making the right credit decisions and keeping financial health. Important studies show that people with higher levels of financial literacy are more creditworthy than customers with low level of digital literacy [8]. Due to advancement in technology, consumers’ manner of obtaining and using credit has definitely changed, resulting in increased use of digital channels and financial technologies. According to research, over 70% in developed countries have adapted to digital banking and crediting through Fintech and that the trend will continue growing [1]. In developing countries digital financial services have elevated financial access, but there are still concerns about the lack of consumer protection and financial literacy. However, in different regions digital literacy can vary greatly meaning that there is a considerable digital divide between urban and rural population.
On an individual basis, the ability to successfully utilize digital finance tools varies significantly between groups of the population. According to research, only a fraction of the customers feels fully confident about their knowledge of making sound financial decisions using digital means, which brings up the issue of the necessity of digital finance education [2]. It is clear that younger people generally show better performance in terms of digital technology skills while older individuals and people living in rural areas experience greater difficulties adapting to digital financial services. All of this indicates the necessity for further promotion of financial inclusion and equal access to finance and loans.
The progress of digital financial knowledge consists of various exchanges of skills, abilities, and confidence among financial organizations and their clients [11]. The objective of the communication is to form a mutual comprehension of digital finance products as well as the credit-making process, which is vital for interaction and collaboration in the sphere of finances. Moreover, it contributes to developing a strong relationship with customers and aims at promoting a good image of the institution among customers. Apart from that, it means understanding the needs of various customer groups, thus serving as a means to obtain customer loyalty and manage creditors more efficiently [10].
Digital financial competence is becoming more crucial and ever-changing in the modern economic world [2]. Financial institutions are aware of the importance of educating customers for their financial institutions in a competitive setting since this leads to financial inclusion, innovation, and loyalty. The digital transformation and globalization of financial services pave the way for inclusivity, various types of financial behavior, and accessibility to financial products. The successful, vibrant, and strategic digital financial education is required for the growth of responsible borrowing, innovations, and adaptability [5]. Behavioral and psychological aspects together help achieve better results in terms of understanding what role digital financial competence plays in credit decisions [3, 8].
Objectives of the Review
The following objectives guide this narrative review:
To analyze collected materials on the subject of digital financial competence and its parts
To consider the connection between digital financial competence and customer credit decisions
To discover essential tendencies, issues, and advantages of digital financial competence in credit dealings
To establish knowledge gaps and suggest the ways for further studies in the area
The study relies on a structured narrative literature review methodology to investigate recent research on digital financial competence and credit decision-making [4]. The purpose of the assessment is to summarize the most important issues along with prospects and issues related to clients' digital financial competence in the context of credit. The methodology comprises inquiry questions, search strategies, and selection criteria.
Research Questions
The examination revolves around the following inquiries:
What is going on today in terms of digital financial competency and decisions to lend?
What challenges currently face digital financial competence as it relates to lending?
What are the advantages that have been reported concerning digital financial competence as it applies to lending?
Search Strategy
The literature query applied a two-pronged approach, which featured the use of academic thesaurus-controlled vocabulary and free-text vocabulary. Boolean functions were processed in order to enhance the search in various scholarly databases. Thus, searches were performed in both Spanish and English with the following structure: (“digital financial literacy” OR “digital financial competence”) AND (“credit decision” OR “credit behavior” OR “borrowing” OR “loan repayment”) AND (“trends” OR “challenges” OR “benefits” OR “outcomes”) [5].
Inclusion and Exclusion Criteria
This review used the following criteria to select the papers:
It considered only the peer-reviewed literature published for ten years and back
Only publications that are published in English or Spanish were taken into account
Only the studies directly working the topics of digital financial competence, financial literacy, and credit decisions were considered
The criteria for disqualifying the studies were as follows:
Any paper that was published outside the stipulated timeframe was disqualified
Any papers that did not directly work with the topics of digital financial competence or credit decisions were disqualified
The studies that only focused on conventional financial literacy without including the digital aspects were disqualified
Data Selection and Organization
According to accepted narrative review protocols [4], the literature reviewed was categorized thematically in relation to the research inquiries. The thematic analysis process helped identify the dominant patterns, difficulties involved, and advantages seen. The review gives an impartial reading of the evidence and recognizes contradictory evidence while being open about methodology. In total, 46 peer-reviewed researches were examined, following the methodology of other narrative reviews of this kind in management science [12].
Existing Trends in Digital Financial Awareness and Credit Decision-Making
Recent researches show several changing trends in digital financial competence due to technology development and changes in financial transactions. These trends indicate the customer’s attitude toward the digital financial services and the way they change their financial behavior in a complicated environment (Table 1).
Table 1: Provides An Overview of the Major Trends Derived from the Reviewed Studies That Are Related to Customer’s Adaptability, Involvement, And Financial Position in a Changing Market
Author(s) | Trends Described |
Jamalurus et al. [1]; Ruiz Cortez [2] | Combining digital financial literacy with conventional financial education; |
Dahlan [3]; Putri et al. [13] | Use of fintech tools to gain access to financing; |
Ruiz Cortez [2]; Buenestado-Fernández et al. | Working on digital financial inclusion for needy groups; |
Dahlan [3]; Gumbo [5] | Tailor-made financial communication and education; |
Ruiz Cortez [2]; Gumilar et al. [14] | Effective use of digital technologies for financial literacy and credit; |
Dahlan [3]; Janani et al. [6] | Incorporating psychological aspects such as self-control and risk perception in the understanding of credit behavior; |
Jamalurus et al. [1]; Choung et al. | Concentration on responsible borrowing and the ability to use credits in a responsible way. |
One of the most observed trends is the combination of digital financial education and traditional financial literacy programs [2]. Because of this combination, customers are able to obtain both elementary knowledge about finance and necessary digital skills to utilize credit products efficiently. Besides, this transformation also requires ensuring the correctness, relevance, and consistency of information provided to customers. Another important trend is the growing importance of personalized way of financial messaging. Financial institutions are starting to provide customized messages rather than just making standard messages in order to meet the needs of different customers according to their digital literacy levels. While this can improve the relevance of messages and customer engagement, this trend does not reduce the importance of studying personas. Digital platforms provide a rapidly growing way for financial education to be incorporated into credit access strategies. Digital technologies, mobile apps, and interactive programs will have a positive effect on the efficiency of financial education [1]. Additionally, financial education approaches undergo significant changes in their target groups with emphasis on diversity, equity, and inclusion formation [2]. Depending on their target audience, gamified apps, and AI-powered multilingual solutions should be used for financial education delivery [1].
There is also an increased emphasis on transparency and authenticity in financial communication. Data analytics to measure the effectiveness of digital financial education is being employed more widely, which allows for more flexible and effective methods of communication. Financial analytics plays an important role in enhancing financial literacy and securing sustainable repayment of loans [1]. Customers are being encouraged more and more to show not only financial literacy, but also the behavioral skills needed for responsible use of credit such as self-control, risk assessment, and understanding of loan conditions [3, 8]. The integration of psychological factors into financial literacy models is also becoming more common [6].
Current Challenges in Digital Financial Competence and Credit Decision-Making
In today's fast-paced and technologically advanced financial market, clients encounter countless obstacles that affect their ability to make sound and responsible credit choices. Recognizing and assessing these obstacles gives a better understanding of the challenges faced by customers when trying to utilize digital financial services properly. A thematic synthesis of key challenges reveals in the reviewed literature is illustrated in Table 2.
Table 2: Thematic Synthesis of Key Challenges in the Context of Digital Financial Competence and Credit Decision-Making
Author(s) | Challenges Described |
Ruiz Cortez [2]; Dahlan [3] | Inadequate levels of digital skills and readiness for the technologies |
Dahlan [3]; Gumbo [5] | Cognitive biases impacting financial decision-making |
Ruiz Cortez [2]; Buenestado-Fernández et al. | The problem of information overload and understanding complicated products |
Jamalurus et al. [1]; Dahlan [3] | Concerns about data security and confidentiality |
Ruiz Cortez [2]; Gumilar et al. (2024) | Ineffective self-regulation and impulsivity when using credit |
Dahlan [3]; Carlsson et al. | Reluctance to use digital products, particularly among older and rural people |
Ruiz Cortez [2]; Dahlan [3] | There is a lack of standards in digital financial education |
A frequent problem is low digital literacy which limits customers' capacity to properly use digital financial services [2]. Individuals who lack the necessary digital knowledge may not be able to grasp the terms of loans online, fill out an online loan application, or understand the advantages and disadvantages of various credit options. The lack of understanding is made worse by digital platforms which may not have a high level of transparency and user-friendliness. Studies show that quick and easy online transactions encourage impulsive purchases or lead to debt problems because of the lack of necessary skills or protection [3].
Cognitive biases affecting financial decisions is one of the major issues. Customers can show multiple biases such as overconfidence, present bias that refers to a tendency to choose immediate rewards over future ones, and loss aversion. These biases can result in wrong credit decisions [3, 8]. With the increase in access to credit, the risk of impulsive borrowing and debt can increase. According to Dahlan [3], the choices to use Buy Now Pay Later (BNPL) are influenced by the design of the platform, the way promotions are framed, and behaviors of the consumers as well as knowledge about finance. Financial institutions have to ensure that they implement educational and behavioral strategies that are effective.
Furthermore, the misalignment of financial literacy programs with the real needs of clients leads to the ineffectiveness of such programs and confusion among the users, especially vulnerable groups. This evidences the necessity of integrated digital financial education systems that ensure coherence across all customer interactions and address different levels of literacy. The digital divide between rural and urban communities also creates a major obstacle to equal access to digital financial services.
Reported Benefits of Digital Financial Competence for Credit Decision-Making
Digital financial literacy aids in better credit decisions, improved financial health, and greater financial inclusion, as well as long-term economic sustainability. The thematic synthesis of the benefits obtained from the reviewed literature is shown in Table 3.
Table 3: Thematic Synthesis of the Main Benefits Associated with Digital Financial Competence in Credit Decision-Making
Author(s) | Benefits Described |
Jamalurus et al. [1]; Choung et al. | Brought about higher levels of financial wellness and less levels of financial stress |
Dahlan [3]; Janani et al. [6] | Provided easier access to credit and lower borrowing rates |
Ruiz Cortez [2]; Gumbo [5] | Resulted in better understanding of risk and enhanced decision-making |
Dahlan [3]; Jamalurus et al. [1] | Promoted responsible borrowing and lower default rate |
Ruiz Cortez [2]; Gumilar et al. (2024) | Encouraged financial inclusion, especially of vulnerable groups |
Dahlan [3]; Gumbo [5] | Expanded ack of power and trust in one’s financial choices |
Jamalurus et al. [1]; Choung et al. | Secured long-term financial sustainability. |
The improvement of financial well-being through our improved credit behavior is among the most common benefits known. Clients possessing higher digital financial literacy make better choices, avoid unnecessary debt, and create successful financial future. This ability helps people find their place in global financial ecosystem and boosts financial confidence and engagement with the economy. Digital financial literacy also promotes responsible borrowing and financial inclusion, thus leading to positive financial results and adaptability to financial changes. According to Jamalurus et al. [1], fintech adoption mediates the link between digital financial literacy andfinancial well-being, which means successful fintech adoption is crucial for acquiring the benefits of digital financial literacy.
Furthermore, digital financial literacy has been connected with financial inclusion, particularly in vulnerable groups such as youth, people from rural areas, and groups earning low income [5]. Financial institutions can help eliminate the digital divide by offering accessible financial education and digital instruments so that people can enjoy fair access to credit services. Effective, comprehensible, and captivating digital financial education can also create trust in financial institutions and stimulate participation in the economy through developing self-esteem and financial potential. Research indicates that a higher level of digital financial literacy leads to increased tendency to save, budget, invest, and use credit responsibly [3].
Digital financial competence has advanced to the forefront of the goals of both consumers and financial institutions in the modern financial era. Consumers have to adapt and perform well in competitive and continually changing financial environments where digital financial competence makes itself known as a vital component for the facilitation and proper execution of credit decisions [2].
One of the points of agreement among the scholars and practitioners in the area of financial inclusion is the belief in the importance of digital financial competence as a necessary ingredient in making any credit initiatives work. Ruiz Cortez [2] pointed out that providing people with easy-to-access and clear financial education is the key factor for keeping them within responsible borrowing practices and overcoming the problems associated with this process. Along with this, there are a lot of studies, which state the importance of digital financial competence on every step of the credit decision-making process, from the awareness stage to repayment, and argues that good financial education creates the motivation that is needed to make consumers engaged in responsible use of credits [8]. Dahlan [3] points out that behavior interventions must go along with financial literacy in the process
The positions taken towards the implementation of strategies for digital financial competence in the process of credit decision making differ. Some researchers view digital financial education as a holistic and integrated process that embodies both cognitive and behavioral dimensions [2]. This means that strategic financial education includes not merely information provision but also fosters a common sense of purpose and financial competence among clients. Others, however, say that financial literacy cannot be enough for spending responsibly [3]. They suggest that a more comprehensive approach should be applied that takes into account other vital aspects like psycological self-regulation, sound communication from financial institutions, sound product design, and the like [8].
Digital financial competence is significant when it comes to credit decisions. This is due to the fact that it has the power to shape customers' thoughts, feelings, and actions. The role of proper financial education is to alleviate uncertainty, which will lead to the emergence of responsible credit behaviors [5]. In a competitive financial landscape, it becomes essential to provide customers with innovative digital financial education techniques for engagement and involvement in financial affairs. A new educational model can help people understand financial products, thereby improving their financial behavior. Moreover, the combination of behavioral nudging and fraud prevention in fintech solutions can result in the maximization of the benefits of digital financial education [1].
Ultimately, the role of digital financial competence in credit decision-making demonstrates the intricate nature and interconnectedness of numerous components in the contemporary financial landscape. Although consensus exists on the significance of digital financial competence, there are divergences regarding its meaning, orientation, and its links with other components of credit decision-making. Digital financial competence is, of course, indispensable for making successful credit decisions in the modern world [8]. However, effective credit management is tantamount to using continuous financial education, effective institutional communication, efficient product design, and strong financial culture together with digital financial competence [6].
In the current landscape of finance, digital financial literacy forms the backbone of successful credit-making deliberations. The review established that systematic, comprehensive, and strategically coherent digital literacy-based education aids individuals in making wise credit-related decisions, allowing for responsible loans and less financial hardship during economic turmoil. It has been suggested that financial literacy and behavioral modifications increase the degree of engagement of an individual in the financial processes through the experience of being involved and responsible for the financial outcome [3, 8].
While certain scholars advocate for the comprehensive model, which states that digital financial literacy should be present at every single stage in the process of making a credit decision, some other researchers believe that financial literacy must serve as an adjunct to the concepts of psychological discipline, institutional communication, and a financial culture [3, 5]. The results of the study prove that digital financial literacy can hardly ensure responsible credit results, but its influence on the attitude, motivation, and decision-making processes of the clients proves the significance of this phenomenon against a larger financial strategy image [1].
The integration of digital finance education initiatives with behavioral change measures, open communications, and inclusive methods may enhance customers’ ability to deal with complicated finance issues and attain ongoing financial well-being. Future investigations should examine the direct link between digital financial literacy and quality of credit decisions made by customers. Long-term studies, research comparing different nations, and qualitative analysis of customers’ experience should assist in investigating this connection and finding effective solutions. Janani et al. [6] and Lyons and Kass-Hanna [11] state that this research could have implications for practitioners in finance, policy-making, and research. Practitioners in finance should be engaged in helping customers with their digital finance education, making credit products easy to use, and recognizing customers’ competence when assessing creditworthiness. Policy-makers, in turn, should work on creating laws providing for competence of consumers and better protection of consumers within the sphere of digital credit. Finally, researchers need to produce appraisal instruments and conduct longitudinal and comparative investigations in this sphere.
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