Neobanks are bridging financial gaps with blockchain

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Traditional finance has been failing for a long time, but its cracks are always overlooked. Under the current economic difficulties, these cracks are finally emerging, and the shortcomings of the traditional financial system can no longer be ignored. Today, approximately 1.4 billion people do not use a bank account. Nearly a quarter of the global population is being left behind by an industry that thrives on exclusion and inefficiency.

Traditional financial institutions, with their outdated models, continue to exclude those without access to documents, credit history or stable infrastructure. This model works against a specific class of population and there have been no significant changes over the years to increase participation. But blockchain and next-generation neobanks may hold the answer to the challenge of financial inclusion in this new era of digital finance.

High fees and delayed transactions

Beyond inclusivity, traditional financial systems have outdated processes that have become unmanageable in today’s fast-paced digital age. Think about international money transfers; Banks still need days to process cross-border transactions and add high fees. Wire transfer fees can average up to 6.35%; This is quite important considering the value of currencies in developing countries.

Neobanks built on blockchain infrastructure are changing this. Such platforms eliminate the need for intermediaries, so transfers are faster, seamless, low-cost and near real-time. Using decentralized networks eliminates the friction imposed by traditional banks, creating a financial system that serves everyone, not just a privileged few.

Financial inclusion is more than access

The issue of financial inclusion is not new; It’s a buzzword that’s been around in the industry for years. Banks are constantly under scrutiny for overcomplicating their hiring processes and making basic financial services inaccessible to individuals struggling with social issues. The majority of the world’s unbanked population lives in developing regions where financial institutions either do not operate or impose insurmountable barriers to entry. The focus on documents and credit history has created an unequal and unfair global financial system that excludes large populations.

Neobanks are challenging this by moving beyond paper-based identification and embracing decentralized models. Technologies such as behavior-based identification models through blockchain, which we also leverage at WeFi, can make banking accessible to those who would otherwise be locked out. These next-generation systems can help provide financial identity to users left behind by traditional banks and provide them with access to equal financial opportunities.

Illusion of ownership in traditional finance

When you deposit your money in a bank, the general expectation is that it will be safe. You expect your money to remain in your account untouched and free of financial problems. This is an illusion created by traditional financial institutions. Banks have full access to your funds and will use them for lending, investing and other purposes. Most banks operate under fractional reserve banking models, which is an extremely vulnerable system. These banks are prone to collapse if there are too many withdrawal requests in a short period of time. We have seen many similar cases during the Covid-19 pandemic. So the perception that you have complete control over the funds in your bank account is just an illusion.

Neobanks, especially platforms that offer non-custodial accounts, are an excellent solution to this problem. Users can retain full ownership and control of their assets and the bank or any third party will not have the right to re-mortgage them. This kind of autonomy is critical for financial resilience, especially in times of economic uncertainty.

Data usage issue

Another major shortcoming of traditional finance is its approach to data. Centralized systems collect large amounts of personal information from customers, creating a honeypot for cybercriminals. The financial industry is a primary target for data breaches, with the sector accounting for 27% of all data breaches in 2023 alone. These centralized systems leave individuals vulnerable to identity theft, fraud, and other cybercrimes, leaving financial institutions with little accountability.

Blockchain-based neobanks eliminate this vulnerability by centralizing data. In this model, individuals retain control over their personal information and the likelihood of data breaches is reduced due to the transparent and secure nature of the blockchain.

What about volatility?

When a user hears about neobanks or blockchains, the first thought that comes to mind is that ‘cryptocurrency is volatile’; Extreme price fluctuations are a major concern for the mass population.

Stablecoins provide a solution that offers the stability of traditional currencies while maintaining the speed, transparency and security of blockchain technology. They create a way for users to avoid the risks associated with volatile assets, ensuring their financial transactions remain stable and predictable.

The future of finance will inevitably revolve around stablecoins, as they offer a clear path towards financial inclusion without exposing users to the high-risk nature of the wider cryptocurrency market. These digital assets make financial services accessible, transparent and reliable for everyone, everywhere.

TradFi is failing the world and the solution is decentralization

The cracks in traditional finance are deepening. Banks have long had control of money and determined who can participate in the financial system. It has resulted in billions of people being left behind either because they are undocumented, live in remote areas, or cannot afford the fees. This system is broken beyond repair and it’s time for something new.

Blockchain-powered neobanks are the optimal solution to eliminate the barriers that deprive many people of basic financial opportunities. Providing a decentralized, inclusive and transparent alternative, these platforms represent the future of finance where everyone can participate, regardless of location or financial background.

Maksym Sakharov

Maksym Sakharov is 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 has a diverse set of skills covering strong leadership, operational excellence and service delivery. He served as the CEO and co-founder of Exflow, as well as the founder and CEO of Whitemark. His career spans a variety of environments, from start-ups to established IT development firms where he has successfully managed operational performance across the Asia Pacific region. His strategic approach to management focuses on optimizing processes and improving team performance, enabling organizations to succeed in competitive markets. Thanks to its extensive experience, Maksym has developed a reputation for fostering collaboration and innovation, making it a valuable asset in any operational environment.