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Traditional finance has been failing for a long time, but its cracks have always been ignored. Under current economic challenges, these cracks are finally coming to light and the shortcomings of the traditional financial system can no longer be overlooked. Nearly 1.4 billion people are still unbanked today. About a quarter of the world’s population is left behind by an industry that thrives on exclusion and inefficiency.
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With their outdated models, traditional financial institutions continue to exclude those who do not have access to documentation, credit history or stable infrastructure. This model works against a certain population, and there have been no significant changes over the years to increase inclusion. However, blockchain and the new generation of neobanks could hold the answer to financial inclusion in this new era of digital finance.
High fees and delayed transactions
Even beyond inclusivity, traditional financial systems have outdated processes that are proving unmanageable in today’s fast-paced digital age. Think about international money transfers: banks still need days to complete cross-border transactions, and that comes with hefty fees. Transfer fees can reach an average of 6.35%, which is significant when you consider the value of currencies in developing countries.
Neobanks built on blockchain infrastructure are changing this. Such platforms eliminate the need for intermediaries, making transfers faster, seamless, cheap and in near real-time. Using decentralized networks removes the friction caused by traditional banks, creating a financial system that serves everyone – not just the privileged few.
Financial inclusion is more than just access
The issue of financial inclusion is not new; it has been a buzzword in the industry for years. Banks are constantly under scrutiny for overcomplicating onboarding processes and making important financial services inaccessible to the socially disadvantaged. The majority of the world’s unbanked populations live in developing regions where financial institutions are inactive or have imposed insurmountable barriers to entry. The focus on documentation and credit history has excluded large populations, creating an unequal and unjust global financial system.
Neobanks are challenging this by going beyond paper identification and adopting decentralized models. Technologies such as behavioral identification models via the blockchain, which we also use WeFi– can make banking accessible to those who would otherwise be left out. These next-generation systems can help provide financial identities to users left behind by traditional banks and give them access to equal financial opportunities.
The illusion of ownership in traditional finance
When you deposit your money in a bank, the general expectation is that it is safe. You expect your money to remain in your account, untouched and free from financial problems. This is an illusion created by traditional financial institutions. Banks have full access to your money and will use it for loans, investments and other purposes. Most banks operate under fractional reserve banking models, a very fragile system. Too many withdrawal requests in a short period of time put these banks at risk of collapse. We have seen several such cases during the Covid-19 pandemic. The perception that you have complete control over the money in your bank account is therefore only an illusion.
Neobanks are a great solution to this problem, especially platforms that offer non-custodial accounts. Users can retain full ownership and control of their assets, and they will not be remortgaged by the bank or any third party. This kind of autonomy is crucial for financial resilience, especially in times of economic uncertainty.
The data exploitation problem
Another major shortcoming of traditional finance is its approach to data. Centralized systems collect vast amounts of personal information from customers, creating a honeypot for cybercriminals. The financial sector is a major target for data breaches; the sector alone will be responsible for 27% of all data breaches in 2023. These centralized systems leave individuals vulnerable to identity theft, fraud and other forms of cybercrime, with little responsibility for financial institutions.
Blockchain-based neobanks remove this vulnerability by decentralizing data. In this model, individuals maintain control over their personal information and data breaches become less likely due to the transparent and secure nature of the blockchain.
What about volatility?
Whenever a user hears about neobanks or blockchains, the first thought that pops up is ‘crypto is volatile’; the wild price fluctuations are a major concern for the mass population.
Stablecoins provide a solution, offering the stability of traditional currencies while maintaining the speed, transparency and security of blockchain technology. They create a way for users to avoid the risks associated with volatile assets and ensure that their financial transactions remain stable and predictable.
The future of finance will inevitably revolve around stablecoins, as they provide a clear path to financial inclusion without exposing users to the risky nature of the broader cryptocurrency market. These digital assets make financial services accessible, transparent and reliable to everyone, everywhere.
TradFi is failing the world and decentralization is the solution
The cracks in the traditional financial world are widening. For too long, banks have controlled money and dictated who can participate in the financial system. It resulted in billions of people being left behind because they lacked documentation, lived in remote areas or simply could not afford the costs. This system is broken beyond repair and it is time for something new.
Blockchain-powered neobanks are the optimal solution for breaking down the barriers that have excluded many from fundamental financial opportunities. By offering a decentralized, inclusive and transparent alternative, these platforms represent the future of finance, a platform where everyone, regardless of location or financial background, can participate.
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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 more than eight years of management experience in the IT industry, Maksym brings a diverse set of skills including strong leadership, operational excellence and service delivery. He was CEO and co-founder of Exflow, as well as founder and CEO of Whitemark. His career spans diverse environments from start-ups to established IT development companies, where he has successfully managed operational performance in the Asia Pacific region. His strategic approach to management focuses on optimizing processes and driving team performance, allowing organizations to thrive in competitive markets. Through his extensive experience, Maksym has built a reputation for fostering collaboration and innovation, making him a valuable asset in any operational environment.