Disclaimer: The opinions and views expressed in this article are solely those of the author and do not necessarily reflect the views and opinions of the editorial team at crypto.news.
In recent times, traditional finance has shown its vulnerabilities, which have long been overlooked. The current economic challenges have brought these weaknesses to light, highlighting the inadequacies of the traditional financial system. With approximately 1.4 billion people still unbanked, a significant portion of the global population is excluded by a financial industry that thrives on exclusion and inefficiency.
You may also like: A challenging journey: Neobanks can democratize access to defi products | Opinion
Traditional financial institutions, with their outdated models, continue to marginalize those who lack access to documentation, credit histories, or stable infrastructure. This exclusionary approach works against a certain demographic, with little progress made over the years to enhance inclusivity. However, blockchain technology and the emergence of neobanks offer a potential solution to financial inclusivity in the digital age.
High fees and delayed transactions
Beyond inclusivity, traditional financial systems struggle with outdated processes that are ill-suited for today’s fast-paced digital landscape. For instance, international money transfers through banks still require days to complete, accompanied by substantial fees. Remittance charges can reach an average of 6.35%, particularly impacting the value of currencies in developing nations.
Neobanks built on blockchain infrastructure are transforming this scenario. These platforms eliminate the need for intermediaries, resulting in faster, cost-effective, and nearly real-time transfers. By leveraging decentralized networks, neobanks mitigate the friction imposed by traditional banks, fostering a financial system that caters to all, not just a privileged few.
Financial inclusion goes beyond access
Financial inclusion has long been a focal point in the industry, with banks often criticized for complicating onboarding processes and restricting access to key financial services for socially disadvantaged individuals. The majority of the unbanked population resides in developing regions where financial institutions either do not operate or have erected insurmountable entry barriers. The emphasis on documentation and credit history has excluded large segments of the population, perpetuating an unequal global financial system.
Neobanks are challenging this status quo by transcending paper-based identification methods and embracing decentralized models. Technologies like behavior-based identification models through blockchain, as utilized by WeFi, can make banking accessible to those previously marginalized by traditional banks, offering them equal financial opportunities.
The traditional finance ownership illusion
When you deposit funds in a bank, there is an underlying belief that they are secure and untouched. However, this perception is a facade perpetuated by traditional financial institutions. Banks have full access to deposited funds, utilizing them for lending and investment purposes. Operating under fractional reserve banking models, banks are susceptible to collapse in the face of excessive withdrawal requests, as witnessed during the Covid-19 pandemic. The notion of complete control over bank account funds is merely an illusion.
Neobanks, particularly those offering non-custodial accounts, provide a solution to this issue. Users retain complete ownership and control over their assets, free from rehypothecation by the bank or any third party. This autonomy is crucial for financial resilience, particularly in times of economic uncertainty.
The data exploitation dilemma
Another significant drawback of traditional finance is its treatment of data. Centralized systems amass vast amounts of personal information, creating prime targets for cybercriminals. The finance sector is a major target for data breaches, accounting for 27% of all breaches in 2023. This centralized approach exposes individuals to identity theft and fraud, with minimal accountability on the part of financial institutions.
Blockchain-based neobanks address this vulnerability by decentralizing data, empowering individuals to maintain control over their personal information. The transparent and secure nature of the blockchain reduces the likelihood of data breaches, enhancing data security for users.
Addressing volatility concerns
When individuals hear about neobanks and blockchain, concerns about crypto volatility often arise. The wild price fluctuations associated with cryptocurrencies can deter users.
Stablecoins offer a solution, providing the stability of traditional currencies while leveraging the speed, transparency, and security of blockchain technology. By mitigating the risks linked to volatile assets, stablecoins ensure stable and predictable financial transactions for users.
The future of finance is poised to embrace stablecoins, offering a pathway to financial inclusion without exposing users to the high-risk nature of the broader cryptocurrency market. These digital assets enhance accessibility, transparency, and reliability in financial services for individuals worldwide.
Traditional finance shortcomings and the promise of decentralization
The flaws within traditional finance are becoming more pronounced. For too long, banks have wielded control over money, determining who can participate in the financial system. This exclusionary approach has left billions of individuals behind, whether due to lack of documentation, remote living conditions, or financial constraints. This broken system necessitates a new approach.
Blockchain-powered neobanks offer a viable solution to dismantling barriers that have hindered access to basic financial opportunities for many. By presenting a decentralized, inclusive, and transparent alternative, these platforms represent the future of finance, where everyone, regardless of location or financial background, can engage.
Further reading: Integrating crypto solutions into traditional business models is imperative | Opinion
Maksym Sakharov
Maksym Sakharov is the group CEO, co-founder, and board member of WeFi, an on-chain, non-custodial neobank. With over eight years of management experience in the IT industry, Maksym brings a diverse skill set encompassing strong leadership, operational excellence, and service delivery. He has served as the CEO and co-founder of Exflow, as well as the founder and CEO of Whitemark. His career spans various environments, from start-ups to established IT development firms, where he has successfully managed operational performance across the Asia Pacific region. His strategic approach to management focuses on optimizing processes and driving team performance, enabling organizations to thrive in competitive markets. Through his extensive experience, Maksym has developed a reputation for fostering collaboration and innovation, making him a valuable asset in any operational setting.