The Rise of Debanking: How ISO20022 and DeFi Banking Applications Are Transforming the Financial Landscape

The following excerpt will delve into the details about a new financial phenomenon debanking and banking the unbanked through DeFi and ISO20022 standardization. This piece is meant to shine light on the severe issues existing within the TradFi (Traditional Finance) ecosystem and how we can improve financial sovereignty, opportunity, and success for underrepresented populations. As few may know, 2.5 billion people across the world do not use a bank account or have access to quality financial products. Most of these underserved adults live in Africa, Asia, and the Middle East. With 25% of the world being unbanked and underserved, Blockchain and DeFi propose lifechanging opportunities.

In recent years, there has been a growing trend of individuals and businesses debanking from major financial institutions. This shift can be attributed to various factors, including dissatisfaction with traditional banking services, lack of transparency, and the emergence of innovative technologies such as ISO20022 and decentralized finance (DeFi) banking applications. We will now explore the reasons behind debanking and how ISO20022 and DeFi banking applications are revolutionizing the financial industry.

Reasons for Debanking from Major Financial Institutions:

1. Lack of Transparency and High Fees: Traditional financial institutions have often been criticized for their lack of transparency and high fees. Customers often face hidden charges, complex fee structures, and limited access to information about their transactions. This lack of transparency has led many individuals and businesses to seek alternative banking solutions that offer greater clarity and lower costs [1].
2. Slow and Inefficient Processes: Another reason for debanking is the slow and inefficient processes associated with traditional financial institutions. Lengthy transaction times, delayed settlements, and cumbersome paperwork can be frustrating for customers who expect fast and seamless banking experiences. As a result, individuals and businesses are turning to more agile and technologically advanced solutions [2].
3. Limited Access to Financial Services: Traditional banks have historically excluded certain individuals and businesses from accessing financial services due to strict eligibility criteria and geographical limitations. This exclusionary approach has left many underserved populations without access to basic banking services. Debanking is driven by the desire to create a more inclusive financial system that caters to the needs of all individuals, regardless of their background or location [3].

The Role of ISO20022 in Transforming Banking:

ISO20022 is a global standard for financial messaging that aims to improve interoperability, data quality, and straight-through processing (STP) in the banking industry. Its adoption offers several benefits that address the concerns associated with traditional banking:

1. Enhanced Data Quality and Interoperability: ISO20022 enables the exchange of richer and more structured data, allowing for better data analytics, improved fraud prevention, and enhanced compliance. By standardizing messaging formats across different payment systems, ISO20022 promotes interoperability and seamless communication between financial institutions [2].
2. Streamlined Payment Processes: The adoption of ISO20022 facilitates faster and more efficient payment processing. With enriched data-carrying capacity, ISO20022 enables operational efficiencies, reduces errors and failures, and enhances straight-through processing. This results in quicker payment settlements and improved customer experiences [2].
3. Improved Customer Insights and Services: ISO20022's standardized messages provide banks with robust data sets that can be used to identify customer trends and offer personalized services. By leveraging this data, financial institutions can enhance their understanding of customer needs and preferences, leading to improved customer experiences and tailored product offerings [2].

The Rise of DeFi Banking Applications:

Decentralized finance (DeFi) banking applications are built on blockchain technology and offer a range of financial services without the need for intermediaries. These applications are gaining popularity due to the following reasons:

1. Financial Inclusion: DeFi banking applications provide financial services to anyone with an internet connection, regardless of their location or background. This inclusivity empowers individuals who have been excluded from traditional banking systems, enabling them to access loans, savings accounts, and investment opportunities [3].
2. Transparency and Security: Blockchain technology, the foundation of DeFi applications, ensures transparency and security by recording all transactions on a public ledger. This eliminates the need for intermediaries and reduces the risk of fraud and manipulation. Users have full control over their funds and can verify transactions in real-time [3].
3. Yield Farming and Staking: DeFi applications offer innovative ways to earn passive income through yield farming and staking. Users can lend their digital assets to earn interest or participate in liquidity pools to earn rewards. These opportunities for earning yield attract individuals seeking higher returns on their investments [3].

Recent Data on Adoption:

The adoption of ISO20022 and DeFi banking applications is gaining momentum globally. According to a report by SWIFT, over 80% of high-value payments worldwide are expected to be processed using ISO20022 by 2025 [1]. Additionally, the total value locked in DeFi applications has reached billions of dollars, indicating the growing interest and adoption of decentralized financial services [3].

The debanking trend from major financial institutions can be attributed to various factors, including dissatisfaction with traditional banking services and the emergence of innovative technologies such as ISO20022 and DeFi banking applications. ISO20022 offers enhanced data quality, streamlined payment processes, and improved customer insights, while DeFi applications provide financial inclusion, transparency, and innovative earning opportunities. As these technologies continue to evolve and gain traction, they have the potential to reshape the financial industry and create a more inclusive and efficient banking ecosystem.

Learn More:

1. Why ISO 20022? | Swift
2. Understand key challenges and benefits to ISO 20022 migration | EY - US
3. Why ISO modernization is so important for financial institutions - IBM Blog

Disclaimer: This is not financial advice and is for informational purposes only. Please consult with a qualified financial professional before making any investment decisions.

The following disclaimer is intended to inform readers that the information provided is for informational purposes only and should not be considered as financial advice. It is important to consult with a qualified financial professional before making any investment decisions.

Pat Trainor is an MBA graduate in Business Management from William Paterson University in New Jersey. With expertise spanning multiple industries such as Music/Entertainment, Finance, IT, and Blockchain/Cryptography, Pat is currently focused on pursuing a career in business analytics. Pat's additive areas of interest include data security, management, capitalization, and sovereignty. Additionally, Pat is an aspiring Real Estate investor/agent and enjoys bodybuilding.