Emerging technology and business models have the potential to transform the way banks function as we fast reach the web3 and metaverse eras. The use of Web 3.0 in banking has far-reaching consequences. It comprises better service for retail bank customers, institutional investors, and companies. The incorporation of AI modules into metaverse avatars allows for more involvement, which benefits users. Unsurprisingly, the financial industry benefits from web3 technologies’ new and expanded features, such as blockchain, smart contracts, and non-financial tokens.
Intermediaries will become obsolete as web3 takes centre stage in banking. Smart contracts will be significantly used in future asset swaps, remittances, insurance, and trade finance. As a consequence, users will benefit from enhanced automation.
This article will discuss the importance of web3 technology in banking, with an emphasis on lending, borrowing, and other banking sector applications.
Why does web3 have a potential to change the game?
Web3 ushers in a new age of decentralisation, which is a distinguishing feature of the Internet’s third generation (hence the name). Web3, the most recent version of the web, has the potential to change this power structure by re-centering users’ attention through the usage of open protocols and standards. Power is being redistributed away from centralised platforms via decentralised “permissionless” smart contracts and blockchains. The most challenging component of web3 governance is carried out in public, rather than behind closed doors. Revenue may be redistributed to artists and users with the appropriate incentives to finance user acquisition and expansion.
How important is this issue? This strategy, which prioritises disintermediation, has the potential to bring in a new age of digital application-based business models. Data, functionality, and value middlemen may no longer be required. Both developers and customers will triumph. It is better to utilise open-source software than proprietary software. This incentive would motivate developers to design, test, grow, and build new apps.
Web3’s ground-breaking concept is built on blockchain storage, asset ownership data, and transaction records. The key role of smart contracts in the web3 architecture is the autonomous execution of app commands.
What is the impact of Web3 on banks?
Decentralized banking systems naturally complement Web 3.0. Innovative new ideas are increasingly combining the two. They think that people may save and spend money without the assistance of banks. These innovative new materials are now mobile device compatible. By 2022, 83% of the world’s population will own a smartphone. According to supporters of stablecoins and DeFi, a large section of the global population may use typical banking services such as borrowing, spending, and utilising digital money without giving confirmation of identification or meeting other severe conditions. This is also not prevented by the anonymity of Web3 accounts.
How successfully can traditional banks adapt to the present? Web3 banking provides consumers and creators with direct access to the financial system. These entrepreneurs must safeguard their funds, preserve their property, and save for an eventuality. The Office of the Comptroller of the Currency (OCC) has suggested that banks in the United States provide cryptocurrency custody services. This includes the provision of “cold” wallets, which store bitcoin in a safe environment away from prying eyes.
A digitally capable bank with a contemporary data infrastructure will prosper, but a traditional bank would struggle. Cloud-based, decentralised technology powered by application programming interfaces was used for Web3 marketplace development. Our new global economy needs a cutting-edge payment system that is interoperable with numerous cryptocurrencies.
The Advantages of Web3 Online Banking
Quick Currency Exchange
Instantaneous cash transfers and settlement timeframes have never been conceivable in banking history. It will take less time to clear a settlement, which can take several business days. Day or night, the countdown will begin and stop in seconds. Because transaction and settlement costs will be considerably cut, sending money abroad will be significantly less expensive. These improvements are made silently so that the user is never exposed to the blockchain.
Blockchain Credit Reporting
Credit histories of customers can have a significant influence on their financial well-being. Traditional centralised credit reporting may have a greater impact on clients’ finances than blockchain-based credit reporting. Furthermore, it enables businesses to use unique credit-worthiness criteria.
Compliance at a Lower Cost
Blockchain technologies provide regulatory bodies the same level of transparency, auditability, and timeliness that stakeholders do. Federal law requires all US banks with a valid banking license to report any suspicious activity to FinCEN (Financial Crimes Enforcement Network). Banks are trusted by regulators to manage fraudulent financial transactions. Financial institutions can better monitor potentially fraudulent conduct since blockchain systems enable the insertion of extensive financial information into a transaction.
What advantages would Web3 offer to regular bank customers?
Blockchain technology is already having a minor but notable influence on the banking and financial industries. You may purchase, trade, and send bitcoins using the services of specific fintech businesses. These virtual currencies are interchangeable with ordinary paper money. Bank transfers that are simple to conduct, settle promptly, and carry low costs for international transactions are on the horizon in nations with modern financial systems. This is the first time blockchain technology will have a real influence on the general public’s regular banking activities. Blockchain technologies can provide a new financial basis in areas where there is no traditional banking system. Individuals in nations without a stable banking system will be more inclined to accept new financial services marketplaces, rules, and ideas if they have access to the Internet.
Endnote Banks benefit greatly from implementing web3 technology. Banks that use Web3 for banking can increase their consumer base outside traditional channels. By combining online platforms, digital wallets, and digital currencies, customers may have access to critical services with the help of IT Consulting Companies. Institutional vaulting can protect digital valuables, video game virtual money, and NFTs. Using web3’s linked web network, banks may develop a trustworthy community of collectors, merchants, exchangers, and service providers. Such efforts help the bank’s reputation as a safe sanctuary for customer cash and a reliable partner in their financial progress.