How web3 in banking will shape the future of finance?

The bank’s role as a central ledger, custodian and credit decision engine is being disintermediated as web3-based banking takes center stage. Smart contracts have been used to automate a variety of processes, including remittances and asset swaps. Web3 banking has important implications for all involved. This technology provides enhanced services to end users (retail bank users, corporate and investment bankers). Users also get an immersive experience in a metaverse-simulated environment. They can continuously provide platform updates and improve interaction with AI modules embedded into metaverse avatars. Web3 technologies, such as blockchain, smart contracts and NFTs, offer new and improved capabilities for the entire banking industry. The research found by Bain indicates that private investment in web3 technology has exceeded $80 billion, where $48 billion went directly into infrastructure for financial markets.

Where net banking is the norm in web2, web3 offers an even better experience than net banking. Metaverse banking allows for more personalized and detailed user experiences. Some banks have already launched metaverse virtual spaces. These virtual spaces are expected to offer a better banking experience to customers. Customers can explore the metaverse space to gain information on banking activities such as loans, deposits and government welfare programs.

Web3 implications for banks

Web3 and decentralized financing go hand in hand. Combining the two has been a trend in new ventures. They believe that people don’t need banks for money management. These new platforms can be accessed via smartphones. The global smartphone penetration rate is expected to reach 83% by 2022. Stablecoins and DefI supporters believe this allows large portions of the world’s population to borrow, spend, and use digital money without the need to submit documentation or comply with regulations required by traditional banks. You can also use anonymous web3 accounts.

Interested to know how can traditional financial institutions integrate with the new world of finance? Web3 banking allows users and creators to connect directly to financial systems. These pioneers need to protect their assets and keep their money safe. According to the US Office of the Comptroller of the Currency, banks might offer safekeeping and custody to cryptocurrency users. This includes access to private and “cold” wallets that users can use to store their assets.

A digitally enabled bank that has the right technology and information systems will succeed, whereas a legacy bank will not. Web3 platforms were built using API-led cloud-based distributed technology. The new world requires a modern payment platform capable of transacting and working with many digital currencies.

Benefits of web3 banking

These are the top opportunities that blockchain solutions offer today’s banking industry:

Quick financial transactions

In banking history, it has been difficult to transfer money and settle funds at near instantaneous speeds. Settlement clearing, which currently takes several business days to complete, will be faster. It will be instantaneous and move between days to seconds, regardless of time or day. Transaction and settlement fees for foreign currency remittances will be significantly reduced. These improvements can be made without the user having to be aware that the underlying blockchain technology is used.

Blockchain-based credit reports

Credit reports can have a profound impact on customers’ financial lives. Credit reporting that is blockchain-based can have a greater impact on customers’ finances than traditional, central credit reporting. This allows companies to take into account non-traditional factors when calculating credit scores. This was a significant bottleneck in traditional credit distribution in financial sectors in the 19th and 20th centuries. It is possible to offer high-quality, blockchain-based credit histories in web3. This will allow consumers to access both traditional credit products as well as blockchain-based loans. Blockchain-based solutions to extend financial credit services will soon allow for automated credit lending and borrowing, secure credit history verification, and lower administrative costs for both consumers and businesses.

Compliance at a lower price

Blockchain solutions offer transparency to stakeholders, full auditing, and a real-time overview of important documents that regulatory agencies might normally request access to. The United States Federal Regulations require that banks licensed to file suspicious activity reports for FinCEN (Financial Crimes Enforcement Network). To manage fraudulent transactions, regulators rely on banks. Blockchain solutions enable detailed financial metadata to be embedded in a transaction. This makes it easier for financial institutions to keep track of suspicious activity.

Web3 in banking use cases

These are just a few of the many use cases of web3 in banking.

Tokenized assets and securities

Investment banks already use tokens to represent custom securities, bonds, and other assets. Tokenization can bring you two important benefits:

• For seamless trading, you can create bonds and securities as required by customers.
• Smart contracts allow the asset to initiate auto trading. This allows banks to create an algorithm that minimizes risks and maximizes returns.

This is an example of how high-value assets such as diamonds and fine art can be tokenized with NFTs. This allows for the trading of the item.

Central banks back the digital currency

The Federal or Central banks are currently working on digital currency that banks can back. In some countries, the plan for launching digital currency before the crypto bill is in the process, which may be materialized in 2023. This digital currency will be treated as bank notes under the financial act and will be treated the same as fiat currency. Pilot projects are also planned for the same. This will enable traders to trade using digital platforms.

Bank payment options allow game monetization

Online gaming is rapidly gaining popularity. Payment integration in the virtual world is possible for banks using web3 banking. A neobank, for example, recently announced the creation of a virtual exchange system that allows users to transfer value from the virtual world into the real world. The bank holds the game tokens and allows the player to use them as a loan.

Virtual banking

The metaverse allows you to visit banks virtually through web3. This is an important use case for web3 in banking. Consumers can use their avatar to visit a virtual branch of a bank, interact with staff and make transactions online. Remote services are a popular trend after the pandemic. The immersive nature of the metaverse allows consumers to interact with advisors more comfortably from their own homes. Financial planning, financial reviews and virtual portfolio reviews can all be made possible by the metaverse. Transactions can be made using token-based assets once a customer has made a decision. This will revolutionize the customer banking experience.

Onboarding employees

The metaverse in web3 allows for 1:1 virtual meetings and employee training. Banks can use these technical capabilities to bridge communication gaps between employees in tier 2 or tier 3 cities and employees from tier 1 cities. This fosters strong bonds among employees and simplifies the customer handling process, making it easier and more efficient.

Conclusion

Banks have many options to embrace the web of the future, i.e., web3. Banks can use web3 to reach new customers beyond their traditional channels. Customers can integrate online platforms, digital wallets and currencies to access key services. Secure storage at the institution level is possible for digital collectibles, virtual currency from video games, or NFTs. Banks can use this connected web network to establish an ecosystem of collectors, merchants and exchanges. This allows the bank to maintain and improve its reputation as both a financial support and a trusted partner for customers’ financial development. Looking for a web3 development service for your banking solution? Materialize your dream project with an expert web3 development company!

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