Traditional financial legacy systems can be outdated in some ways, particularly in terms of their technology infrastructure and ability to adapt to changing customer needs and market trends.
These systems were often developed decades ago and were not designed to handle the complexities of modern financial transactions. Moreover, traditional financial systems may not be able to keep up with the demands of today’s consumers for fast, convenient, and personalized banking services. Many customers expect to be able to access their accounts and make transactions 24/7 from any device, and legacy systems may struggle to provide this level of service.
While many financial institutions are investing in modernizing their legacy systems to keep up with the changing market landscape, it is proving to be difficult for the industry as a whole to compete with decentralised finance and the blockchain technology they rely on.
Self-custody and No Downtimes
“When you sign up for electronic banking (e-banking), your bank will typically provide you with a unique username and password that you can use to access your account online. However, e-banking systems can experience technical glitches or downtime, which can prevent customers from accessing their accounts or making transactions. This can be frustrating and may require customers to contact customer support for assistance,” says Yang Lan, co-founder of Fiat24.
“What we have done at Fiat24 is to recreate some of the services which banks provide directly on the blockchain. One difference is that we don’t issue usernames and passwords, but rather our clients sign in and access their dashboard directly via their self-custody crypto wallet. Another advantage we have is that, because of the nature of blockchain, there is no downtime (no bank holidays or weekends to disrupt transactions being processed) and our clients have 24/7 access to our services.”
Banks can benefit from DeFi solutions
The DeFi space is still evolving and there are risks associated with these solutions, but banks can potentially benefit from the cost savings, efficiency improvements, and new revenue streams that DeFi solutions offer.
To highlight just a few ways:
DeFi solutions can reduce the costs associated with traditional financial services, such as intermediaries and middlemen, which can be eliminated through smart contracts and decentralized platforms. This can help banks reduce their operational costs and offer more competitive pricing to their customers.
Streamlining many financial processes, such as clearing and settlement, by automating them through smart contracts. This can reduce the time and costs associated with traditional financial transactions and improve the speed and efficiency of banking operations.
Greater transparency and accountability in financial transactions can help banks build trust with their customers and improve their reputation. This can also help banks comply with regulatory requirements and reduce the risk of fraud or money laundering.
DeFi as a Disruptor
It is without a doubt that DeFi has the potential to disrupt the traditional financial industry in several ways, but currently, traditional finance has significant advantages, including regulatory compliance, stability, and infrastructure. Traditional financial institutions have established customer bases, reputations, and relationships with other financial institutions that can be difficult for DeFi to replicate.
While DeFi represents a potential disruption to the traditional financial industry, it is not necessarily competing with traditional finance at this time. Both DeFi and TradFi have their own unique advantages and challenges, and it remains to be seen how these two sectors will evolve and potentially intersect in the future.