The Future of Online Banking: DeFi
Web3 is the evolution of the internet we have all been waiting for. With core principles revolving around decentralization, trustlessness, and user sovereignty, the shift away from single central entities (whether that be government or corporation), is a fundamental component that should excite anyone with a digital presence.
The convergence of blockchain technologies into online banking is a no-brainer. Traditional online banking models have long been characterized by centralized institutions, intermediaries, and limitations on user control, primarily provided by established brick-and-mortar banks and financial institutions.
The advent of technological advancements, coupled with changing customer preferences, have led to the emergence of alternative models that aim to decentralize and democratize financial services — posing a likely threat to traditional online banking.
Let’s explore some Web3 principles and how decentralization, blockchain technology, and smart contracts can be applied to the banking industry.
The Problems with Online Banking
Surely we have all experienced the following when using our various online banking platforms:
- authentication issues
— slow loading and web downtimes
— duplicate payments and incorrect transfers
These are just minor inconveniences when compared to the real issues we are facing. Users of traditional online banking services have limited control over their financial activities, with transactions often requiring manual approval, which is also tied to the role of intermediaries who we rely on for verifying customer identities, processing payments, managing accounts, providing financial advice, and more.
More of what users are up against include the fact that centralized institutions can introduce inefficiencies in terms of transaction processing, particularly for cross- border or complex transactions. Also, traditional banks often charge fees for various services, and these fees can accumulate over time.
All of these points make a strong use case for a DeFi alternative — and whether they like it or not, some great alternatives are well on the way to replacing these outdated systems.
A Decentralized Financial Ecosystem
“Web3 Banking is a new concept, but one that we believe will shape the future. In fact, the DeFi sector is already experiencing huge growth and drawing interest from the TradFi world,” says Fiat24 Co-Founder and ex-banker Yang Lan.
“Unlike traditional banks where assets are held and managed by third parties, Web3 banking enables individuals to hold and secure their assets through private keys and wallets. Transactions are transparent and recorded on a public ledger (in our case, the public blockchain Arbitrum), reducing the risk of fraud and ensuring accountability. These are all things that are exciting as we look at a new way of “banking” which places users convenience at the heart of everything.”
As the technology and products become more mature and user-friendly, coupled with increased regulation to protect users and a surge in interest, DeFi has a great potential to overtake and replace traditional e-banking.
The Future of Banking
The vision of Web3 banking represents a significant shift in the way financial services are provided, putting users at the center and removing traditional intermediaries.
Envisioning the future of banking as a fully decentralized, user-centric, and globally accessible ecosystem built on Web3 principles is an exciting prospect. As more people start to learn about the user-centric financial control that they can enjoy, as well as ownership, trust, and accountability, banks should be concerned that the future of banking will be drastically different to how we’ve experienced it so far.
And also, perhaps, that this future isn’t too far away!
