Web3, backed by innovative technologies like blockchain, crypto, and NFTs, is anticipated to be the next giant evolutionary leap for the internet. This new-age internet version will bring more decentralization to the ecosystem, which also means that users will be able to interact and transact independently, eliminating the need for third parties to oversee or verify interactions.
The biggest impact of decentralization through Web3 will come on the banking, finance, and FinTech industries, as it will eliminate the role of intermediaries and third parties. Thus, financial service providers, especially the ones acting as intermediaries or third parties in transactions, will have to start looking for alternatives or adapting the Web3, specifically blockchain, in a fruitful way.
This blog will discuss a few significant ways in which Web3 and Blockchain technologies will disrupt and evolve the fintech industries. But foremost, we will talk about the elephant in the room: decentralization.
Bringing the age of decentralized finance
One of the biggest revolutions that web3 will bring to the BFSI industry is the introduction of new banking models that could easily overpower traditional banking systems and other financial institutions. And we already have one of the most significant web3-enabled finance systems, popularly known as Decentralized Finance or DeFi.
The DeFi system has introduced a novel internet-native, crypto-backed financial system in which the traditional intermediaries or third systems are almost eliminated and replaced by blockchain and smart contracts within a peer-to-peer system. Hence, users can now directly send and receive money and trade other digital assets from their digital wallet to others without the need or help of any financial institute or centralized bank.
There is more
The features of DeFi systems are certainly not just limited to sending and receiving money. You can think of Decentralized Finance as an umbrella term that encompasses all kinds of financial trading, which also includes lending and stock trading. Hence, DeFi systems can also be considered a crypto version of traditional financial products that do not require third-party regulations and oversight of traditional finance.
Now, the debate regarding the absence of regulations is interesting. It can be a good as well as a bad thing. The absence of regulations sets the user free from the inefficiencies and red tape that we find in traditional banking and finance systems. But it also takes away the consumer protection that we often enjoy in the traditional banking systems.
However, being optimistic, decentralized finance can solve a large number of problems that we find with traditional banking systems. For example, decentralized finance can offer banking services to people globally, especially to individuals living in remote locations or who have been denied services by traditional banks because all you need to use defi services is an internet connection. Thus, it is believed that defi systems will create a better and more equitable financial ecosystem for everyone.
A Technical View
From a technical perspective, the rise of web3 is inevitable, and the defi moment actually represents an internet-native financial system that is typically built for the evolved version of the internet. However, the traditional banking and finance system, which still relies on outdated technologies, may not last in a Web3-dominated era.
This is also an alert for all those financial services that are still developing and relying on the technologies of the web2 era. Those financial services will certainly have to revamp their products and services to sustain in the web3-dominated ecosystem. Plus, they have to develop customer-centric products and services to ensure that they are aptly serving their customers.
Now, let's focus on how blockchain will leave an impact on everyday banking in the web3 era.
Everyday Banking with Blockchain:
Today, and certainly in the future as well, we find blockchain applications in almost every industry, whether it is healthcare, supply chain, or something else. But the genesis of blockchain actually happened to service banking services. Thus, the most basic features of blockchain are storing transaction data, creating tamper-proof transaction history, and facilitating secure transactions. These features can also be found in the banking system.
Experts believe that blockchain will help banks a lot in adding value to their customers and staying relevant in a web3-dominated era. Blockchain-enabled fintech and banking solutions are already helping customers make faster transactions at cheaper transaction charges, and that too across the globe while using different currencies and crypto as well.
An example
Ripple is one of the best examples of blockchain-based money transfer networks. The platform has its own cryptocurrency, called XRP, but can also offer money exchanges across a number of government-backed currencies, crypto, and other assets like gold. The platform is highly capable of processing transactions globally and is considered a trusted facilitator of peer-to-peer transactions. Thus, it can also be considered a Web3 alternative to the SWIFT money transfer network.
The biggest advantages of a blockchain-enabled banking solution are:
Transactions can be done in just a few seconds. On the other hand, the traditional banking system takes days to wire money.
The transaction fees are significantly smaller.
Some traditional banks, such as Axis Bank and PNC Bank, have already started using the Ripple network to improve their services.
Blockchain can even revamp the lending system
You may already know the lending mechanism in the traditional banking system. But in case we don't, the money we deposit in our banks is generally used by banks to fund loans they offer. And as a reward, we also get a small interest on the money we deposit in banks. In this system, the bank assumes all the responsibility of vetting borrowers, keeping all the records, and collecting the funds as well.
But banks, being the centralized and governing authority, make the maximum profits. Whereas the depositor just makes peanuts. On the other hand, in a web3-enabled lending system, the user will get the driving seat. In a web3 ecosystem, users don't have to deposit money in banks, which further lends money and takes away the maximum profits. Instead, the user's money will remain safe in a blockchain wallet, enabled and automated by smart contracts.
The smart contracts will act as an escrow account, hold the money, and disburse funds to borrowers if the predetermined conditions are met. Thus, the biggest benefit will be that the loan's terms and conditions will be visible to participants on smart contracts, thus providing complete transparency. The smart contracts will also manage the repayment of the loan and make sure that the interest is aptly paid back to the original depositors.
Take away
The benefits of the things that we have talked about are just the ones that we are seeing on the surface. A web3-dominated fintech industry will be much more user-centric, fast, transparent, decentralized, free from third parties, and innovative.
But this blog also acts as an alert for the players in the fintech industry to revamp and redesign their solutions and make them web3-friendly and blockchain-enabled. WebMob Software Solutions can be your best friend in your journey of developing more Web3-friendly fintech solutions. We are the most renowned blockchain development services provider with years of experience and a team of some of the most gifted minds in the blockchain industry.
Book a call with us if you want to develop a futuristic and high-end blockchain-enabled fintech solution.
