Everything You Need to Know About Web3 Banking
As we are entering the era of Metaverse and Web3, we see how many technologies and business models are evolving and believed to change the working of banks. Although Web3 will definitely reach many industries and help them grow within a few years, Web3 has significant implications for all parties involved in the banking domain now. It not only can boost the security of transactions but also seems to offer enhanced services for end users, including banking users, investment bankers, and corporates.
According to the report, the global Web 3.0 Blockchain Market size is suggested to reach $12.5 billion by 2028, growing at a market growth of 38.2% CAGR during the forecast period. The speed of market growth is caused by the need for decentralization and the popularity of blockchain-based projects. Web3 offers decentralization which is being built, operated, and owned by its users. This way, it will put power in the hands of users rather than corporations.
In addition, the global smartphone penetration rate has hit 83% in 2022. DeFi users believe that Web3 will allow a whole swathe of the worldwide population to borrow, spend, and utilize digital money. This will also reduce the need for the identity checks, documentation, or regulations traditional banks require.
And if you are running a banking business, you will soon notice that people choose decentralized finances over your services. The situation will only get worse each year. So how can you, as a traditional financial institution, interact with this new world and stay relevant? Web3 is a simple answer. While more time is needed for Web3 to be used globally, you have time to explore opportunities for the new technology and see how you can benefit from it.
What is Web3?
Before moving to Web3 DeFi opportunities, let’s explore what Web3 means. Although Web3 sounds huge, the Internet won’t be replaced with a new version. It is more about adding new things to the Internet we already use. As you can guess, there were two versions of the Internet known as Web and Web 2.0.
Each has its own characteristics, and they change over time with the adoption of new technologies and tools. So when you ask what Web3 is, the answer is simple – it is the next evolution of the Internet, growing out of Web 2.0.
Web3 Banking Opportunities
Quick Financial Transactions
It has never been possible to pay or perform transactions immediately in traditional banking. Settlements of transactions, which now take days, will speed up. The time will move from days to seconds regardless of the time and day. Web3 banking allows for transaction and settlement fees to be greatly reduced.
Credit Reports Based on Blockchain
Credit reports can have an effect on customers’ financial lives. However, blockchain-based credit report processes can impact customers’ financial lives even more. That is why it allows financial organizations to consider nontraditional factors when calculating credit scores.
Wev3 technology allows you to get high-quality, blockchain-based credit histories. This also greatly increases consumers’ access to traditional credit services and blockchain-based loans alike. In fact, experts believe that extending financial credit services will also help automate credit lending and borrowing while also verifying credit histories in a secure way and reducing administrative costs for both parties.
Compliance at a Lower Cost
As you know, blockchain is decentralized and transparent. That is why Web3 DeFi offers transparency for all parties involved in the process while also providing full auditing and a real-time overview of essential documents that banks usually request access to. These regulators rely solely on the banking sector to manage fraudulent transactions. Therefore, blockchain solutions allow financial metadata to be added to a transaction, which makes the process of keeping records easier, faster, and more secure.
Many well-known banks specializing in investments already use tokenization to represent custom securities, bonds, as well as other assets. Tokenization is a new trend that offers two key benefits for banks:
- Creation of bonds and securities for seamless trading.
- Smart contracts allow for self-executive trading, meaning banks can develop an algorithm that minimizes risks and maximizes returns.
Tokenization is when assets are turned into non-fungible tokens (NFTs). For example, some banks have already turned high-value assets like diamonds into NFTs.
Central Banks Support the Digital Currency
Most central banks are already working on digital currency that banks can support. Some countries develop plans to launch digital currency before crypto becomes an ultimate choice, which may be achieved in 2023. This currency is believed to be treated as bank notes under financial regulations and as fiat currency as well.
Online gaming is gaining popularity at an immense speed. That is why banks using Web3 will be able to offer payment integration in the virtual world. Neobank is a great example since it recently announced the development of a virtual exchange system that allows players to transfer value from the virtual world into the real world. The bank is responsible for holding the game tokens and lets gamers use them as a loan.
Another opportunity offered by Web3 in banking is that it can be linked with Metaverse. This way, users will be able to visit your bank in a Metaverse, interact with virtual staff and make transactions online. The immersive nature of the Metaverse allows users to interact with bank specialists more comfortably and engage from their own homes. In addition, most things that we usually do offline, like planning, financial reviews, and virtual portfolio reviews, will be possible virtually. As a result, we will also see Web 3.0 investment opportunities.
Benefits of Web3 Banking for Clients
Traditional banks still rely on outdated and inefficient systems in order to facilitate communication within large networks of counterparties. However, modern consumers do not like the low speed and high costs that banks require for various activities like clearing and settlement.
As a result, banks that use blockchain ledger can offer solutions that will boost speed and reduce the costs of transactions. Being a secure and efficient peer-to-peer method for data distribution, blockchain ledger has been shown to reduce inefficiencies within an organization while also eliminating the need for intermediaries and delivering significant cost savings for the industry overall.
Banks are one of the most appealing targets for hackers today. As a result, banks have long been trying to strengthen their security systems and safety procedures to prevent data breaches. Unfortunately, even when using the latest technologies and several verification methods, banks still experience security issues, and clients are losing their money. Blockchain technology has quickly become an excellent choice for any bank looking for increased security.
FinTech organizations can bolster bank security in a number of ways. First, blockchain technology as a base of the process can be used to develop robust know-your-customer (KYC) solutions, which use cryptographic protection that ensures that all members of a blockchain network are verified. Additionally, the data can be easily shared with all members of the network, which also reduces the need for intermediaries to handle the distribution of information.
Blockchain solutions have already started to challenge the banking space in terms of payments and other money transfers, so it isn’t surprising that many banks are already using blockchain to see what benefits it can offer. Even though the blockchain ledger is useful for both money transfers and payments, it is especially vital for cross-border payments.
In traditional banking, regular payments can take days. That is because humans can’t work 24/7, and transactions are made only when several parties approve them – a time-consuming and costly process. Blockchain doesn’t need humans to perform transactions, so they can be done at any time and day. In addition, transfers are done through smart contracts, boosting the speed of transactions.
As we already mentioned, blockchain smart contracts automatically handle money exchange between parties. Since humans aren’t involved in the process, and smart contracts execute automatically when a set of rules is met, this approach can greatly reduce the risk of errors.
Challenges Banks May Face with Web3 Implementation
Accessing the Web3 platforms could be a tricky task for some users. Even if you adopt Web3 into your banking projects, you may lose some customers who are not able to access your services or products. That is because of their location, the device they use, and so on. Web3 needs more time to become accessible.
We are closing the gaps of Web2 step by step. Since web standards have been agreed upon, companies have started using standards and approved payment methods, so users have become less worried about its security. But Web3 is a new era, and regulations will only be developed over time, so early adopters of Web3 banking can face security issues.
It took many years for companies and users to learn to use the web. Imagine how hard it could be for some users to adjust to new realities. And while Gen Z will be able to learn about Web3 faster, some users will need much more time, and, of course, you will have to learn faster as well.
How Can Interexy Help?
Being the leading blockchain development provider in Dubai & Miami, we offer DeFi development services. We know how fast the market moves and want to deliver the highest quality in the market for each and every client. Since it could be hard to follow trends and the latest technologies for business owners, we always share our ideas on software improvements.
Our Web3 development services cover the entire cycle of software development from scratch and are based on your unique needs and business requirements. Our teams are made up of experts in blockchain, Metaverse, and NFT industries, so you get skilled and experienced specialists to work on your project.
Web3 is a hot topic in the tech world. While it is still a concept, some industries should consider how to adjust to new realities, and one of the key domains is banking. Offering a more secure, fast, and decentralized ecosystem, Web3 banking can benefit both users and banks if they are ready. Book a call with our experts to discuss your project and explore how we can help!
How is Web3 shaping the future of finance?
Web 3 will reduce the need for intermediates and offer a decentralized financial system.
What is the potential of Web3 in banking?
Web3 will have many opportunities for banks, like fast transactions, reduced costs of transactions, increased safety, tokenized assets, game monetization, and more.