Web3 in banking creates freedom in banking services by making them decentralized and automated by adopting web3 technologies like blockchain, AI and machine learning, etc.
The digital world is witnessing a remarkable shift, and the new internet technology - Web 3.0 makes the internet more resilient and scalable. Web 3.0 is maturing every day and will become mainstream soon. The fusion of Web 3.0 and metaverse technology is promising and will reform and optimize many industries, and banking are not an exception. Currently, Web 2.0 offers just internet banking, and its capabilities are limited to next-gen digital banking. Financial institutions are evolving and rely on technologies like Web 3.0 to characterize their future.
Further in this article, the potential benefits of Web3 and how it will positively change and leave an ever-lasting impact on banking are clarified.
Web3 gives freedom to users and allows them to create, own, and monetize their content without the involvement of big institutions or the Government. It enables seamless collaboration among its participants in a decentralized environment.
The decentralized and openness of Web3 allows users to avail banking services without intermediaries, saving cost and processing time. Web3 business ideas offer plenty of benefits for corporates, bankers, and consumers. Web3 with metaverse offers a surreal banking experience to its users with a virtual bank-like platform. Continuous platform updates as per market evolution will be made effortlessly with Web3, thanks to the flexibility of Web3 technology.
Further, Web3 metaverse banking provides a personalized user experience and better data visualization. Already global banks are on the verge of launching a metaverse bank, where users can explore banking activities like loans, welfare schemes, investment, etc. In addition, the inclusion of AI, blockchain, and NFT, Web 3.0 will disrupt the banking model for a positive shift.
Web 3.0, with its open standard and protocols, distributes power via permissionless blockchain and makes users govern the infrastructure. This gives users gain the upper hand and complete control over their assets and data. Further, the openness of Web 3.0 paves the way for innovation by allowing users to participate in building the infrastructure. It will be like users building, managing, and governing the banking infrastructure for the benefit and betterment of the community.
The decentralized Web3 banking allows people to access all the facilities via smartphone. Using Web or mobile applications, users from any part of the world borrow, transact, or lend money instantly without a bank visit to the bank or waiting for application processing. Additionally, Web3 anonymity enables them to engage in banking activities without revealing their identity.
Banks enable users to connect with the financial systems directly and should tirelessly work to nurture a positive relationship instead of simply venturing and monetizing. They should also offer savings account and safeguards users' asset & money by offering appropriate storage and wallet facilities (for instance, the bank can provide a cold wallet facility for users to store their cryptocurrencies).
A technologically evolved Web 3.0 bank with the best protocols and modern payment gateways will succeed, irrespective of the changing paradigm.
The benefits of Web3 on modern banking are unlimited and will be unrivaled as it matures. Some impactful benefits of the Web3-based banking system are below.
With centralized banking, it is impossible to transact or settle an enormous amount quickly. Web3-based banks enable users can avail of banking services instantly, irrespective of their geographical location. Also, transaction fees are lower for international banking.
As stated, the decentralized nature of Web3 banks allows consumers to enjoy all the banking services without any middleman. Further, they can control and manage their funds and cut intermediary costs with a web3 wallet.
Web3 improves the effectiveness of modern banking by analyzing users' internet activities. It allows users to personalize their banking experiences and provide banking offers that they would find more appealing.
Web3 uses blockchain technology to record relevant factors and calculate accurate credit reports. It also enables users to acquire blockchain-based loans, verify credit history, and automatically get or lend loans (Defi) based on Smart contracts.
Banking regulators (for instance, Reserve Bank (India) and Federal Reserve System (USA)) depend on banking institutions to identify and prevent fraudulent activities. The transparency and financial metadata of blockchain technology make this task easier.
The use case of Web3-based decentralized banks is manifold and covering all of them is beyond the scope of this blog. Here, we listed some potential use cases of Web3 in the banking industry.
The decentralized institution uses security tokens that represent certain assets and custom securities. Asset tokenization allows banks to liquidate physical assets like land or artworks (as NFTs) into security tokens, making them tradable with minimal risk and assuring a maximum return.
Web3 and metaverse facilitate Virtual Banking, a breakthrough in the banking sector. Customer with their avatar visits a bank, chat with banking staff and transact virtually from the comfort of their living space. Metaverse enables the customer to avail of services like personalized loan suggestions, financial planning, audit report, etc.
Metaverse allows banks to identify and locate top talents via virtual interviews and even deliver virtual training. Metaverse meetings create a strong bond among employees, prevent communication gaps and enable them to work uniformly. It establishes a streamlined workflow and enhances customer onboarding and retention rate.
Virtual gaming (based on the metaverse) became the talk of the internet and grabbed gamers' attention globally. It allows users to earn rather than play the games. Users can collect virtual assets & items and monetize these assets by tokenizing them as NFTs. It also enables gamers to avail of loans by submitting the tokenized asset as collateral.
Many governments across the world are working on their digital currency. For instance, RBI will launch its virtual currency in FY23, which will be considered equivalent to fiat currencies. These currencies will be regulated and governed according to RBI guidelines, and unlike cryptocurrencies, their price will be stable.
Read more: Top 10 Use Cases of Web3
Web3 banking utilizes blockchain technology that allows anyone to transfer assets and identities across the world. The incorporation of Web3 technology gives the advantage of cross-border payment and makes the infrastructure interoperable, secure, and efficient. Banks will offer more liquidity options and simplified fund management and treasury activities. Enabling faster processing & transaction rate, improved security, and reduced costs are the other benefits.
Web 3.0 also enables users to access all the value-added services just with the internet in underdeveloped countries. Web 3.0 offers uninterrupted banking services without any restrictions as they are invulnerable.
Further, the inclusion of cryptocurrency, NFTs, and Defi into the Web3-based banking system will allow users to maximize their returns and trade globally across multiple channels.
Web3 enables users to hold their assets or funds in a non-custodial wallet instead of giving their authority to banks. The blockchain contains the ownership and transaction data, and Smart contracts enable them to deposit their funds as liquidity. A smart contract acts as an escrow that releases locked funds on meeting the predefined condition. Users can avail of loans by submitting adequate collateral (crypto/NFT/security tokens). Smart contracts disburse loans when the borrower meets the given criteria. The borrower can liquidate the loan without any tax deduction.
Defi lending enables users to avail of loan service 24/7 through automated and shared infrastructure. Smart contract practically decides the Loan-to-Value ratio, liquidity limits, and interest rate as per the specified instruction. Interests incurred will be managed by DAO, which governs the entire banking system. The DAO is not entitled to claim the interest instead given to the original liquidity depositor. The smart contract also controls collateralization and automatic liquidations, thus minimizing credit risk.
In 2021, more than $200 billion in loan amount was disbursed in one of the largest Web3 lending platforms, and the estimated unrecovered debt amount was roughly around $1 Million. It shows the underlying potential of Smart contract-enabled Web3 lending platforms and modern banking.
Web 3.0 organizations must be prepared to adopt this emerging technology and optimize their business operation. Web 3.0 will surely create new financial markets, banking infrastructure, and many monetizing opportunities.
Web3 is the only viable solution that addresses and resolves the pain points of traditional banking customers while allowing them to unlock many monetization opportunities. Web 3.0 enable banks to attract new users by allowing them to integrate their crypto and NFT assets.
To conclude, banks should take advantage of Web3 and form a network of connected users to establish an ecosystem of merchants, service providers, bankers, and exchanges. They must figure out a unique and effective value proposition to their user base while retaining the consumer right of traditional banking.
If you have revolutionary Web3 banking ideas or looking for one, connect with Maticz. We can offer the best web3 solution to idealize your banking business and make it future-ready!
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