The opinions expressed in this article are solely those of the author and do not reflect the views and opinions of the editorial team at crypto.news.
For a long time, traditional finance has been failing, but its flaws have been overlooked. However, in light of the current economic challenges, these flaws are becoming more apparent, and the shortcomings of the traditional financial system can no longer be ignored. There are still nearly 1.4 billion people who are unbanked, and around one-fourth of the global population is excluded from an industry that thrives on exclusion and inefficiency.
Traditional financial institutions, with their outdated models, continue to exclude those who lack access to documentation, credit histories, or stable infrastructure. This exclusionary model works against a certain class of people, and there have been no significant changes over the years to promote inclusion. However, blockchain technology and the emergence of neobanks offer a potential solution to financial inclusivity in the digital age.
One of the major issues with traditional financial systems is the high fees and slow transactions. Cross-border money transfers, for example, still take days to finalize and come with hefty fees. Remittance charges can be as high as 6.35%, which is significant for developing nations. Neobanks built on blockchain infrastructure are changing this by eliminating the need for middlemen, resulting in faster, low-cost, and almost real-time transfers. Decentralized networks remove the friction imposed by traditional banks, creating a financial system that serves everyone, not just the privileged few.
Financial inclusion goes beyond access. Traditional banks have been criticized for making onboarding processes overly complicated and inaccessible to socially disadvantaged individuals. The majority of the unbanked population resides in developing regions where financial institutions either don’t operate or have imposed insurmountable barriers to entry. Neobanks are challenging this by adopting decentralized models and behavior-based identification through the blockchain. These next-generation systems can provide financial identities to users who have been excluded by traditional banks, giving them equal financial opportunities.
The perception that traditional banks provide full control over deposited funds is an illusion. Banks have complete access to these funds and can use them for lending, investment, and other purposes. Most banks operate under fractional reserve banking models, which are highly vulnerable. Neobanks, especially those offering non-custodial accounts, offer a solution to this issue. Users retain full ownership and control over their assets, and the bank or any third party has no rehypothecation rights over them. This autonomy is crucial for financial resilience, particularly during times of economic uncertainty.
Another major shortcoming of traditional finance is its approach to data. Centralized systems accumulate vast amounts of personal information, making individuals vulnerable to data breaches and cybercrime. Blockchain-based neobanks decentralize data, allowing individuals to retain control over their personal information and reducing the likelihood of data breaches due to the transparent and secure nature of the blockchain.
The volatility of cryptocurrencies is often a concern for users when considering neobanks and blockchains. Stablecoins offer a solution by providing the stability of traditional currencies while leveraging the speed, transparency, and security of blockchain technology. They allow users to avoid the risks associated with volatile assets, ensuring stable and predictable financial transactions.
The future of finance will inevitably revolve around stablecoins, as they offer a clear path to financial inclusion without exposing users to the high-risk nature of the broader cryptocurrency market. These digital assets make financial services accessible, transparent, and reliable for anyone, anywhere.
Traditional finance is failing the world, and decentralization is the solution. Banks have held control over money and determined who can participate in the financial system for too long, leaving billions of people behind. This broken system cannot be repaired, and it’s time for something new. Blockchain-powered neobanks offer an optimal solution by dismantling the barriers that exclude many from basic financial opportunities. These platforms provide a decentralized, inclusive, and transparent alternative, representing the future of finance where everyone can participate, regardless of location or financial background.
Maksym Sakharov, the group CEO, co-founder, and board member of WeFi, an on-chain, non-custodial neobank, shares these views. With over eight years of management experience in the IT industry, Maksym brings a diverse skill set and a strategic approach to management. His extensive experience has made him a valuable asset in operational settings, fostering collaboration and innovation.