Why Neobanks will turn to De-Fi
The last 18 months have been difficult for nearly all sectors, including financial services. Despite this, neobanks continue to obtain large funding rounds and are growing rapidly, with 1 opening every 5 days, globally. This highlights the continued disruption in the sector as neobanks continue the need to differentiate from traditional banks after their counterparts opened or updated their own online versions to compete with the challenger’s smooth UI/UX and trendy functions such as personalised saving pots.
In the financial world, the key challenger to traditional banking has been cryptocurrency, which is evident by Bitcoin establishing a higher market cap than any other bank in the world. Ethereum is only behind JPMorgan Chase and Bank of America, whilst 3 other cryptocurrencies have a place in the top 25 by market cap ranking. This rise has in part been due to increasing institutional adoption, which in turn gave greater legitimacy and confidence to the sector as a whole. Over the last 6 months Mastercard and PayPal announced that they would be supporting cryptocurrencies on their networks, including Bitcoin, Ethereum and Litecoin. More recently, Goldman Sachs opened their first crypto trading desk and JPMorgan Chase announced that they would be offering a Bitcoin fund to their clients. These global banking leaders are expanding their teams and monies into cryptocurrencies for the long term.
Whilst institutions such as investment banks are adopting crypto, high street banks are currently holding off — much to the elation of neobanks, as it has allowed them a head start to offering services in the most disruptive branch of finance this century. The leading challenger bank in Europe already offers customers the ability to purchase select cryptocurrencies directly from their app. However, cryptocurrency has moved on from just speculating the prices of Bitcoin and Ethereum, and customers are wanting to do more with their coins.
The latest high value sector of crypto is decentralised finance (De-Fi), which is where most institutional capital is pouring into. Decentralised finance is where traditional investment vehicles meet the blockchain and where high interest rates can be earned on savings. As such, over the last 12 months, the total value locked in these vehicles has increased 8300% to over $85bn. In contrast to traditional banks in the UK where you’ll struggle to find more than 0.1% APY, with interest rates slashed by the Bank of England, De-Fi powered Scallop will offer earn accounts with rates of between 4–15%. By offering such a de-fi powered neobank, combined with the inevitable blockchain revolution, it wouldn’t be crazy to think neobanks could soon become on par with their old-fashioned traditional rivals. Ultimately, though we are indeed the first de-fi powered neobank, we are expecting others to follow in our steps and utilise De-Fi as a way to challenge and eventually conquer the traditional banks.
Currently there is no straight on/off ramp for fiat and cryptocurrency offered in financial services, and this key challenging point is where Scallop will be looking to differentiate itself and provide real value to its customers. Whilst some existing neobanks do currently allow you to purchase crypto on the platform, you cannot do much else with it apart from selling it straight back into fiat. Furthermore, any neobank which offers crypto purchases at the moment, do so with ‘closed wallets’ — that is, you cannot send that crypto to an exchange or transfer it to another account. Moreso with closed wallets, you do not own the cryptocurrency itself, you merely gain access to it whilst the platform obtains ownership of the holdings. With Scallop, we instead offer both a secured crypto wallet giving full autonomy to users and a hardware wallet for added security. Users will be able to transact seamlessly between crypto and fiat as well as being able to make payments for the favourite services such Netflix and Spotify, directly with cryptocurrency for the first time.
Scallop is a DeFi enabled neo-bank that utilises blockchain at its core to provide a safe and secure solution to bridge the gap between traditional and decentralised financial systems.
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