Opinion Blockchain is Helping Neobanks Bridge Financial Divides

Disclosure: The opinions expressed in this article are solely those of the author and do not reflect the views and opinions of the editorial team at crypto.news.

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 evident, and the shortcomings of the traditional financial system can no longer be ignored. There are still nearly 1.4 billion people who remain unbanked, and around one-fourth of the global population is excluded from an industry that thrives on exclusion and inefficiency.

Traditional financial institutions continue to exclude those who lack access to documentation, credit histories, or stable infrastructure, due to their outdated models. This exclusionary model disproportionately affects certain populations, and there have been no significant changes over the years to increase inclusion. However, blockchain technology and the rise of neobanks offer a potential solution to financial inclusivity in the digital age.

In addition to excluding people, traditional financial systems also suffer from outdated processes that are ill-suited for the fast-paced digital era. For example, international money transfers through banks can take days to finalize and come with hefty fees. Remittance charges can reach an average of 6.35%, which is significant for individuals in developing nations. Neobanks built on blockchain infrastructure are changing this by eliminating the need for middlemen, resulting in faster, low-cost, and almost real-time transfers.

Financial inclusion is not just about access; it’s about removing the barriers that prevent individuals from participating in the financial system. Traditional banks have complicated onboarding processes and make key financial services inaccessible to socially disadvantaged individuals. Most of the unbanked population lives in developing regions where financial institutions either don’t operate or have created insurmountable barriers to entry. Neobanks are challenging this by adopting decentralized models that go beyond paper-based identification. Through behavior-based identification models on the blockchain, neobanks can provide financial identities and equal financial opportunities to those left behind by traditional banks.

Traditional finance creates an illusion of ownership when you deposit funds into a bank. However, the reality is that banks have complete access to your funds and can use them for lending, investment, and other purposes. Most banks operate under a highly vulnerable fractional reserve banking model, which can lead to collapse in times of economic uncertainty. Neobanks, particularly those offering non-custodial accounts, provide a solution to this issue. Users retain full ownership and control over their assets, with no rehypothecation by the bank or any third party, ensuring financial resilience.

Another major shortcoming of traditional finance is its approach to data. Centralized systems collect vast amounts of personal information, making individuals vulnerable to data breaches and cybercrime. The finance industry accounts for a significant portion of data breaches, with little accountability on the part of financial institutions. Blockchain-based neobanks decentralize data, giving individuals control over their personal information and reducing the likelihood of data breaches.

The volatility of cryptocurrencies is a concern for many users when considering neobanks and blockchain technology. However, stablecoins offer a solution by providing the stability of traditional currencies while leveraging the benefits of blockchain technology. Stablecoins ensure that financial transactions remain stable and predictable, avoiding the risks associated with volatile assets.

Traditional finance is failing the world, and decentralization is the solution. Banks have held control over money and dictated who can participate in the financial system for too long, resulting in billions of people being left behind. Blockchain-powered neobanks offer a decentralized, inclusive, and transparent alternative that represents the future of finance. In this future, everyone, regardless of location or financial background, can participate in the financial system.

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 successfully managed operational performance across the Asia Pacific region and is known for fostering collaboration and innovation.