Disclosure: The author’s views and opinions expressed in this article are their own and do not represent the views and opinions of crypto.news’ editorial team.
For a long time, traditional finance has been failing, but its flaws have been overlooked. However, under the current economic challenges, these flaws are becoming more apparent, and the shortcomings of the traditional financial system can no longer be ignored. Approximately 1.4 billion people are still unbanked today, leaving behind around a quarter of the global population due to exclusionary and inefficient practices in the industry.
Traditional financial institutions, with their outdated models, continue to exclude those who lack access to documentation, credit histories, or stable infrastructure. This model works against a certain class of population, and there have been no significant changes over the years to promote inclusion. However, blockchain technology and the emergence of neobanks may hold the key to achieving financial inclusivity in this new era of digital finance.
In addition to excluding people, traditional financial systems also suffer from outdated processes that are unmanageable in today’s fast-paced digital era. Take international money transfers, for example—banks still take days to complete cross-border transactions and charge hefty fees. Remittance charges can reach an average of 6.35%, which is significant considering the value of currencies in developing nations.
Neobanks built on blockchain infrastructure are revolutionizing this. These platforms eliminate the need for intermediaries, making transfers faster, seamless, low-cost, and almost real-time. By removing the friction imposed by traditional banks, decentralized networks create a financial system that serves everyone, not just a privileged few.
Financial inclusion is not just about access; it’s about making financial services accessible to socially struggling individuals. The majority of the unbanked population lives in developing regions where financial institutions either don’t operate or have imposed insurmountable barriers to entry. The focus on documentation and credit history has shut out large populations, creating an unequal and unjust global financial system.
Neobanks are challenging this by adopting decentralized models and moving beyond paper-based identification. Technologies like behavior-based identification models through the blockchain, which WeFi is also leveraging, can make banking accessible to those who would otherwise be excluded. These next-generation systems can provide financial identities to users left behind by traditional banks and give them equal access to financial opportunities.
Traditional finance creates an illusion of ownership when you deposit funds into a bank. The expectation is that your funds are safe and untouched. However, this is an illusion created by traditional financial institutions. Banks have complete access to your funds and use them for lending, investments, and other purposes. Most banks operate under fractional reserve banking models, which are highly vulnerable. In the event of too many withdrawal requests, these banks are prone to collapse, as we have seen during the Covid-19 pandemic. Therefore, the perception of full control over the funds in your bank account is merely an illusion.
Neobanks offer a solution to this issue, particularly platforms that provide non-custodial accounts. Users can retain full ownership and control over their assets, with no rehypothecation by the bank or any third party. This autonomy is crucial for financial resilience, especially 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. The finance industry is a prime target for data breaches, accounting for 27% of all data breaches in 2023 alone. With little accountability on the part of financial institutions, individuals are at risk of identity theft, fraud, and other cybercrimes.
Blockchain-based neobanks address this vulnerability by decentralizing data. In this model, individuals retain control over their personal information, and data breaches become less likely due to the transparent and secure nature of the blockchain.
When people hear about neobanks or blockchains, they often worry about the volatility of cryptocurrencies. However, stablecoins provide a solution by offering the stability of traditional currencies while leveraging the speed, transparency, and security of blockchain technology. Stablecoins 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. The flaws in traditional finance are becoming more evident, and banks have long held control over money and participation in the financial system. This has resulted in billions of people being left behind due to lack of documentation, remote locations, or inability to afford fees. This broken system cannot be repaired, and it is time for a new approach.
Blockchain-powered neobanks offer the optimal solution to breaking down the barriers that have excluded many from basic financial opportunities. By providing a decentralized, inclusive, and transparent alternative, these platforms represent the future of finance, where everyone can participate regardless of location or financial background.
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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.