Web 3 in Banking

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Web 3 incorporates NFTs, Blockchain, smart contracts, and digital currencies. Web 3 in banking reduces operational risks and boosts transaction security. It helps banks to develop efficient and innovative products.

The tech provides many benefits for banks. Benefits include rapid transactions, increased security, and tokenized assets. Web 3 will minimize the need for mediators and provides a decentralized financial system.

Here are a few benefits, challenges, and use cases of Web 3 in banking.

Benefits of Web 3 in Banking

Benefits of Web 3 in Banking

  • Quick Transactions

Rapid money transferring and settling has been impossible in banking. With Web 3, settlement clearing, which takes several business days, will become faster. It will reduce transaction and settlement fees in case of foreign currency remittances.

  • Compliance at Lower Costs

Blockchain provides transparency for stakeholders and a real-time view of essential documents that regulatory agencies would request access to.

For example, US Federal regulations require information on suspicious activity reports for FinCEN.

Blockchain enables the embedding of detailed financial metadata into a transaction. It makes it easier for banks to keep a record of suspicious activity.

  • Blockchain-based Credit Reports

Credit reports affect the financial lives of customers. Blockchain-based credit reporting considers non-traditional factors when calculating credit scores.

With Web 3, banks can offer high-quality, Blockchain-based credit histories. It increases the customer’s access to traditional credit products and Blockchain-based loans.

Blockchain solutions will automate credit lending and borrowing. It can securely verify credit histories. These solutions cut administrative costs for consumers and companies.

  • Reduces Costs

Traditional banks use outdated and inefficient systems to interact with large networks of counterparties. But, modern customers do not like the low speed and high costs required for many activities like settlement and clearing.

The blockchain ledger is a secure and efficient peer-to-peer method for data distribution. It boosts speed and reduces transaction costs. It also reduces inefficiencies, eliminates the need for mediators, and delivers significant cost savings.

  • High Security

Banks are an easy target for hackers. Thus, banks must tighten security systems and safety processes to prevent data breaches.

Besides strong security and verification methods, banks experience security issues, and customers lose money. Blockchain is an ideal choice for any bank looking for increased security.

They can elevate bank security in many ways. They can use Blockchain as their base process to develop KYC solutions. These solutions use cryptographic protection. It verifies all members of a Blockchain network.

Moreover, it enables banks to share information with all network members easily. It reduces the need for intermediaries to handle information distribution.

  • Facilitates Instant Payments

Blockchain helps in rapid payments and money transfers. While the Blockchain ledger facilitates money transfers and payments, it is vital for cross-border payments.

Specific parties must approve traditional and regular payments, which results in the transactions taking many days to process. It makes the process time-intensive and costly.

Blockchain can facilitate transactions at any time. Also, transactions via smart contracts maximize the speed of transactions.

  • Minimal Errors

Smart contracts handle money exchange between parties. It executes automatically when a set of rules are met reducing the risk of errors.

Use Cases of Web 3 in Banking

Use Cases of Web 3 in Banking

  • Virtual Banking

A virtual visit to banks via metaverse is a vital use case of Web 3 in banking. The customized avatar allows customers to visit the bank, interact with the staff, and transact virtually.

Customers can also interact more comfortably with advisors. Metaverse offers financial reviews and planning, virtual annual portfolio reviews, and mortgage advice delivery.

Customers can make payments via token-based assets. It elevates customer banking experiences.

  • Employee Onboarding

One-on-one virtual meeting and employee training is possible via Metaverse in Web 3. It reduces communication gaps between employees.

It builds a strong bonding among employees. Moreover, it streamlines the customer handling process, making the onboarding process effective and seamless.

  • Tokenized Assets and Securities

Banks use tokens representing bonds, custom securities, and other assets. Tokenization of the assets offers two primary benefits.

Firstly, banks can create bonds and securities as per customer requirements for easy trading. Secondly, the assets initiate auto trading using smart contracts. It allows banks to build an algorithm that increases returns and decreases risks.

Factors Affected by Web 3 Adoption in Banking

  • Investment Strategies

Web 3 investments have a long payoff period despite changing markets. Various use cases will require coordination with other institutions.

Thus, banks must revamp their processes. But, they must balance the changes against financial considerations, the capacity for change, and regulatory compliance.

  • Operating Models and Ecosystems

Banks can establish centralized Web 3 coordination that aligns the initiatives with the overall ambition and better track outcomes. Moreover, captive approaches to Web 3 will generate more value by building ecosystems.

  • Talent and Risks

Web 3 talent is harder to find. Hence, banks must develop structures to attract and seek ways to access talent and capabilities through ecosystem partners.

Moreover, legacy control systems pose significant risks. Web 3 offers enhancements in risk management. However, banks must reassess the current processes and work with regulators to develop accurate supervision and regulations.

Challenges of Web 3 in Banking

  • Accessibility

Accessing the Web 3 platforms is challenging. Also, banks may lose a few customers who cannot access the services or products.

There could be several reasons, like device incompatibility or location. Therefore, the technology requires more time to become entirely accessible.

Also Read: How Fintech Devices Are Transforming Banking and Payments

  • Security

With web standards set, banks have started using approved payment methods. But, with Web 3 in a new era, regulations and standards will develop over time. Thus, banks adopting Web 3 early might face security issues.

Conclusion

According to a report by Report Linker, “Global Web 3.0 Blockchain Forecast 2022 – 2028,” the Web 3 Blockchain market will reach USD 12.5 Billion by 2028. It will register a CAGR of 38.2% globally. The statistics indicate rapid adoption of Blockchain-based projects.

Web 3 allows banks to reach new customers beyond their traditional channels. It enables customers to access key services through digital wallets, online platforms, and currencies. The tech offers secured storage for virtual currency or NFTs.

With the help of Web 3, banks can create an ecosystem of collectors, merchants, and exchanges. It allows the bank to maintain and enhance its reputation as a trusted partner for customers’ financial development.

Apoorva Kasam
Apoorva Kasam
Apoorva Kasam is a Global News Correspondent with TalkCMO. She has done her master's in Bioinformatics and has 18 months of experience in clinical and preclinical data management. She is a content-writing enthusiast, and this is her first stint writing articles on business technology. She specializes in marketing technology, data-driven marketing. Her ideal and digestible writing style displays the current trends, efficiencies, challenges, and relevant mitigation strategies businesses can look forward to. She is looking forward to exploring more technology insights in-depth.

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