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The world is rapidly decentralizing.
What if the banking system as we know it is about to end?
What if banking operational structures-leadership, management, and transaction model are about to be completely transformed?
Well, financial institutions are experiencing a global transformation powered by Decentralized Finance (Defi). This transformation is still in its early stages, and it`s supported by Distributed Ledger Technology (DLT).
So, what is Distributed Ledger Technology?
DLT is a kind of database that is accessed, validated, and recorded among the users of a decentralized network. The DLT records the transactions, like the exchange of data or assets, among the network players.
In simple terms, the DLT is all about the concept of a decentralized network against the conventional centralized mechanism. And is perceived to have far-reaching connections on entities and sectors that have long depended on “trusted third-party.”
So, what are you waiting for?
Scroll down, and check out how decentralization is disintermediating banking services. And why we believe that the Blockchain is to the banking sector what the internet bubble was to the book stores.
i) Disintermediating Global Branches and Middlemen
Imagine Decentralized Finance services powered by technology itself instead of expecting a third party to execute commands to credit one account, pay a check, and debit another account?
Would Life be better, right?
Now, such technology is already in place. And the good news is, it rewards the consumers conducting the transactions with the power to control it and the potential to approach the unbanked.
Doing away with intermediaries or global branches and conducting money transactions via a smart contract on a Distributed ledger is instrumental. And this is made possible through community governance.
Community governance gives Decentralized Finance the potential to make better decisions and Serve customers globally without launching global branches and overcome the power of fake news.
ii) Borderless Liquidity
It`s a no-brainer that the globe is moving at a fast and furious pace.
And guess who has the patience to sign paperwork or approve transactions at the nearest local branches? Nobody.
To cope with the pace, startup financial services have created fully mobile banking apps, making transactions possible by instilling better security.
These banking apps send money within the shortest time possible and almost without corresponding banks or transaction fees.
This, therefore, creates room for a competent consumer experience that has nothing to do with the service interface. But instead, the objective is to make it simpler for users to eliminate bureaucracy and access their monies.
Real-time transactions controlled by decentralization can squash overdraft fees because instead of laxity in transactions, finances circulate between vendors and clients at supersonic speed. Payday lending’s anticipation also reduces since the laxity between receiving and cashing transactions disappears.
Therefore, the underserved users and minorities who utilize these services stand to gain.
iii) Earn a Fee on Every Asset, Trade, and P2P Loan Conversion
If somebody told you ten years ago that Blockchain would drastically revolutionize the banking sector, would you believe it?
Yes or No?
It`s simple. In 2017 a Business Insider Report indicated that roughly 48% of bank executives believed that modern technologies such as Artificial Intelligence and Blockchain intend to revolutionize the banking system. It provides updated technology and the latest decentralized finance philosophy to do away with centralized processes.
The blockchain ideology has resulted in multiple digital peer-to-peer banking platforms, which encourage financial negotiations to occur in a more decentralized manner. It fuels the existence of cryptocurrencies.
The introduction for P2P loan conversion opens windows to implement quick loans without paperwork or bank approval. Furthermore, it discourages lawyers and brokers from demanding payments from the transaction since the stock is issued directly.
P2P loan conversion also protects the business against currency devaluation. It allows the business to grow simultaneously, which means no buying currencies or paying cash to money transfer companies. Those profits are, therefore, channeled to peers conducting the transactions.
iv) Enhance Consumer Transactions through Digital Coins
Digital coins are simply money in data form.
In decentralized banks, people enjoy the privilege of anonymity. And as a result, they become skeptical concerning the individuals governing the existing banks.
When issuing digital coins, intermediaries are replaced by peer-to-peer and smart contract services, which quicken the direct transaction between the borrowers and the lenders. They also keep the transaction process accurate and conflict-free.
But most importantly, smart contracts enable cross-border transactions. So, wherever you are, including the forgotten parts of the world, you remain connected. All you need is a laptop, mobile phone and internet connection. The three allow you to access the decentralized banks at your convenience.
This convenience eases digital coins’ lending (and not fiat monies) whose underlying technology is Blockchain.
v) Move Past Less Digitized Firms in The Competitive Banking Space
Speaking of the competitive banking space, especially with the rise of digital tech-the future of financial institutions (Crypto) seems bright.
And with 2021 promising stiff competition, decentralized banking can only survive if it remains updated. For instance, Artificial Intelligence (AI) imposes changes in every banking services sector, including the back, middle and front offices.
AI is already prosperous with world-class customer service software using chatbots and other smart systems. Banking industries will also enable speedily transactions and offering convenience to consumers depending on their request.
Besides, machine learning in the back office can significantly influence the simple credit underwriting model. Therefore, if you’re either shifting careers or launching a business, AI is the better option.
Ignore it at your peril.
vi) Financial Institution Acquiring New Roles
As decentralization continues to grow the banking sector brick by brick, it`s succeeding by introducing new roles, which entail integrating Blockchain into their business operations.
Of course, the new roles have some advantages. And they include;
introducing new dawn of night owl. Blockchain operates 24/7. It never sleeps. Unlike the banking institutions that only function during business hours, five days a week, no transactions are done on weekends.
Consumers can also easily monitor how their transactions are processed in less than 10 minutes. This frame is the same regardless of weekends, holidays, week, or time of day.
Besides, Blockchain makes it easier for banks to exchange finances between institutions faster and securely. For instance, in the stock trading business, the settlement and clearing process for local trading can take roughly three days. And even longer for global trading, which means that the shares and money are frozen for those durations.
vii) “Tokenization” of Assets
what is tokenization? and how exactly can assets be tokenized?
Well, it`s simple. To quench your curiosity
Assets “tokenization” is the use of data.
Data analysis allows financial institutions to understand their consumer’s demands better.
Nowadays, a bank no longer has to limit itself to ownership profiles, demographics, and mere risk. It can access geolocation data, purchase data, lifestyle and psychographic data, and information concerning the use of social media and channel preferences.
In-depth analytics enables banks to utilize data to determine buying preferences and anticipated timing needs. Besides, it allows firms to customize smooth communication with their users. The personalized strategy can also make marketing initiatives much more imperative.
Geolocation data is enough to make Crypto becomes the internet’s reserve currency. For instance, when you utilize finite elements such as bitcoin, it encourages geographic-agnostic business in a digital space. That would give local traders some extra advantage- global consumers because most traders intend to attract more international users.
So, it would help them “skate where the puck is moving by accepting Crypto.”
And ding dong, now that you have stick to us until the end, can you imagine a world without physical banks?
It`s almost happening, and Blockchain is determined to achieve it. With the cryptocurrency market drastically gaining mileage, it’s anticipated that more decentralized banks will not only prosper in 2021 but also they will skyrocket in the future.
Decentralized Finance (Defi) represents a fundamentally modern way to conduct business. It introduces a competent and smart next generation of applications to the exchange and registry of virtual, physical, intangible, and tangible assets.
Kudos to the crucial concept of a shared public ledger, decentralized consensus, and Distributed Ledger Technology (DLT).
Again, there`s no doubt that blockchain technologies will exceedingly transform how we organize our banking activities for the betterment of a prosperous 2021.
Featured Image from Shutterstock Price
Verolian Opiyo is a former teacher of English turned content strategist. He
specialises in writing about FinTech and Next-generation technology.