Opinion Blockchain Empowers Neobanks to Close Financial Gaps

Disclosure: The author’s views and opinions expressed in this article are their own and do not necessarily reflect 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, in the face of 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, with around a quarter of the global population being 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Traditional financial institutions, with their outdated models, continue to exclude those who lack access to documentation, credit histories, or stable infrastructure.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 model works against a certain segment of the population, and there have been no significant changes over the years to increase inclusion. However, blockchain technology and the new generation of neobanks may hold the key to achieving financial inclusivity in this digital age.

In addition to excluding certain individuals, traditional financial systems also suffer from outdated processes that are ill-suited for today’s fast-paced digital era. Take international money transfers, for example. Banks still require several days to complete cross-border transactions, and they often impose hefty fees. Remittance charges can average 6.35%, which is a significant burden for developing nations.

Neobanks built on blockchain infrastructure are changing this landscape. These platforms eliminate the need for intermediaries, resulting in faster, seamless, low-cost, and almost real-time transfers. By removing the friction imposed by traditional banks, decentralized networks create a financial system that serves everyone, not just the privileged few.

However, financial inclusion goes beyond access. The issue has been a buzzword in the industry for years, with banks criticized for overcomplicating onboarding processes and excluding socially disadvantaged individuals from key financial services. Most of the unbanked population resides 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 further marginalized large populations, contributing to an unequal global financial system.

Neobanks are challenging this status quo by moving away from paper-based identification and adopting decentralized models. Leveraging technologies like behavior-based identification models through the blockchain, neobanks can make banking accessible to those who would otherwise be excluded. These next-gen systems can provide financial identities to users who have been left behind by traditional banks, granting them equal financial opportunities.

Traditional finance creates an illusion of ownership when you deposit funds into a bank. You expect your funds to remain untouched and free from financial issues. However, this is merely an illusion created by traditional financial institutions. Banks have complete access to your funds and can use them for lending, investment, and other purposes. Most banks operate under fractional reserve banking models, which are highly vulnerable. In the event of too many withdrawal requests in a short period, these banks are at risk of collapsing, as we’ve seen during the Covid-19 pandemic. Therefore, the perception of full control over the funds in your bank account is a mere illusion.

Neobanks offer a solution to this issue, particularly platforms that provide non-custodial accounts. With these accounts, users retain full ownership and control over their assets, and neither the bank nor any third party has any control over them. 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 from customers, making them attractive targets for cybercriminals. The finance industry accounts for 27% of all data breaches in 2023 alone, leaving individuals vulnerable to identity theft, fraud, and other cybercrimes, with little accountability from financial institutions.

Blockchain-based neobanks address this vulnerability by decentralizing data. In this model, individuals have control over their personal information, and the transparent and secure nature of the blockchain makes data breaches less likely.

When users hear about neobanks or blockchains, the volatility of cryptocurrencies often comes to mind. The wild price fluctuations of crypto assets are a major concern for the general population. However, stablecoins provide a solution by offering 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. The flaws in traditional finance run deep, with banks having long held control over money and determining who can participate 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 fixed, and it’s time for something new.

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, regardless of location or financial background, can participate.