How will Web3 shape the Fintech Industry?

We live in a time when the global economy is fast changing, such that finance permeates all facets of life and Fintech businesses are able to widely utilize digital/virtual payment methods

Meanwhile, 2021 saw a concrete transformation of the World Wide Web (www) and triggered the rise of Web 3.0 or Web3, leveraging blockchain technology, artificial intelligence (AI) and machine learning (ML). Apparently, this more decentralized and individualized Internet has changed our business and operating models from the ground up, putting pressure on traditional banking systems and financial services companies to break new ground.

Here’s my take on the disruption of the fintech industry in the web3.0 era.

Overview of the FinTech sector.

Financial technology (Fintech) as we know is used to describe new tech that seeks to improve and automate the delivery and use of financial services. At its core, fintech is explored to help companies, business owners, and consumers enhance their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on computers and, increasingly, smartphones. FinTech is quite pervasive in all types of areas and will continue this trajectory to encompass more. The growth of FinTech, however has been brought about by a plethora of factors; ranging from technological, societal, and transitional business models, facilitating glitch-free financial transactions for individual and corporate entities.

In addition, the emergence of new technology platforms, via smartphones, has certainly been a significant factor for individual users and corporate service providers. Beyond client offerings, corporate use of FinTech has had quite outstanding impacts and much of the impact is the change to business models. The prevalence of online lending, wealth management, brokerage, etc. has upended many of the traditional firms. However, these firms are leveraging FinTech to help streamline operations, automate processes, and develop their own unique offerings.

Web3 as a game changer for Fintech companies.

The peer-to-peer nature of web3 blockchain technology makes it seamless to decentralized marketplaces, eliminating the need for a centralized company to act as the middleman between buyers and sellers.

This with no doubt is a big feat for both buyers and sellers. For instance, the absence of a centralized authority would eliminate the need for a reputational system.

If a ‘bad actor’ is removed from the system, it doesn’t matter whether they have a good reputation or a bad one as they have no power to influence the marketplace. Also, a decentralized marketplace could use smart contracts to eliminate the need for trust. In this case, when both buyer and seller agree to a rules-based contract governing their transaction, the blockchain network will enforce that contract once the rules are met. And once the contract has been executed, the terms and outcome of the transaction becomes immutable for each of the parties involved.

Also, in 2021, decentralized banking grew by 1500%, where Cryptocurrencies were used to secure more than $14 trillion in transactions. According to another study, banks and insurance companies are using AI technology to automate credit risk modeling and to update how credit scores are calculated. This demonstrates how Web3, which uses AI technology, is molding itself along the finance sectors.

Furthermore, the FinTech landscape is evolving with the emergence of web3, which ushers in decentralized Finance, powered by blockchain technology. The latest iteration of the internet will change the rules of the game in the FinTech industry, creating a ripple effect and wave of innovation to financial services.

In fact, companies and businesses are already feeling the impact of decentralized finance (DeFi) leveraging blockchain technology. The world is on the verge of a new wave of fintech applications and services that brings about a new Internet infrastructure built on the Ethereum blockchain.

Challenges of FinTech in the web3 era.

Undoubtedly, challenges create opportunities for technological concepts to evolve. Although the new technologies have many benefits, regardless, they also pose some challenges.

• Firstly, Decentralized?Finance is still in the early stages of development. This is a pointer to the fact that some bugs and glitches are inevitable and must be fixed.
• Secondly, blockchain technology is constantly evolving, which means the protocols and platforms that provide financial services can change quickly; taking businesses and entrepreneurs on a surprise spree.
• Thirdly, DeFi has no central authority and it's a global system, so the rules and regulations that apply to the traditional financial system do not necessarily apply to the DeFi system. For example, in the conventional financial system, there are KYC (know your customer) and AML (anti-money laundering) regulations that banks must follow. However, in the DeFi system, these regulations do not necessarily apply.

?Impacts of Web3 on FinTech Industry.

?Web3 enables a more connected and intelligent world for the Financial Technology industry by completely transforming the plans for individuals, businesses and regulators to work together and collaborate.

Ultimately, Some of the primary benefits of the new distributed operating model and the convergence of Web 3.0 include;

• Trustworthiness – Web 3.0 will ensure end-users always have complete ownership and control over their online data without hassles from any intermediary or middleman..
• Accessibility – the users will not be denied access to information as much as possible from anywhere in the world.
• Improved customer journey – Web 3.0 will allow fintech organizations to understand the several evolving needs and expectations of their customers in a much better way.
• Faster transactions – Web 3.0 will provide real-time, secured, and transparent transactions for FinTech companies across the world.

As a result of open, transparent transactions and interactions, essential financial functions such as credit scoring, identity verification, and fraud prevention will be reconfigured, resulting in multiple benefits for consumers. Namely, Web3 shifts the balance of power back in favour of the consumer. The ability for individuals and businesses to transact with entities across the globe––free from interference by central parties––sets the stage for a robust economic ecosystem online.

The third generation of internet services is disrupting the way people, businesses, and regulatory organizations are collaborating and planning to work together.

With the integration of DeFi at the heart of new technology, we have a completely new financial system outside of the central authorities’ control. The DeFi system’s protocols and platforms that provide financial services are decentralized and cannot be shut down by any bank.

DeFi is also more efficient than the traditional financial system. People can send money directly to someone without going through a mediator. All the transactions are recorded on the blockchain and are visible to everyone with an Internet connection, making it more transparent and accessible.

Due to the advantages of the DeFi systems, the benefits of web3.0 can be quite impressive. For example, web3.0 makes the onboarding process more user-friendly. Every single evolution of the web will ensure even more trustworthiness for businesses by eliminating security issues of storing any data.

With web3.0’s list of contributing technologies, fintech companies can automate processes to perform customer journey mapping and allocate resources more efficiently to meet client demands, facilitate better engagement, and encourage enduring loyalty.

Final Thoughts.

The financial services industry is undergoing major upheaval, spurred on by technology developments such as blockchain and distributed ledgers. What’s certain is that DeFi is here to stay, Web3 is right on the horizon, and financial services will never be the same.

Financial institutions of all kinds must start allowing access to DeFi functionality to consumers through their banking and insurance services. Otherwise, they’ll be left in the dust by DeFi platforms and challengers that see the future — and the future blends ease of use and convenience with the power of decentralized finance.