The new banking model in the era of digital finance

Under the severe challenges of today's economic environment, the defects of the traditional financial system have become more and more obvious, and problems that were ignored in the past have gradually surfaced. About a quarter of the world's population has been left behind by an industry characterised by exclusion and inefficiency. Traditional financial institutions continue to operate with outdated models that continue to exclude those who lack formal documentation, credit history, or stable infrastructure. Not only does this disadvantage certain segments of society, but it has not seen significant improvements in promoting financial inclusion for many years. However, the emergence of blockchain technology and a new generation of digital banks may offer new solutions for achieving financial inclusion.

First, the traditional financial system has obvious drawbacks such as high fees and transaction delays. In the rapidly developing digital age, the processing process of traditional finance is particularly backward. For example, when it comes to international remittances, banks often take several days to complete cross-border transactions and are expensive, with the average remittance fee up to 6.35%. For developing countries, the numbers are even more significant. A new breed of bank, built on blockchain technology, is changing this by eliminating the need for intermediaries. These platforms not only speed up transfers, but also reduce costs, enabling funds to arrive almost in real time, eliminating the cumbersome processes associated with traditional banks, and building a more efficient and inclusive financial system.

Second, financial inclusion is not just about access to financial services. For a long time, this issue has attracted much attention in the industry. Banks' complex onboarding processes and exclusion of the most vulnerable in society have left many people without access to basic financial services. In many developing countries, the lack of financial institutions or the establishment of high barriers prevents large numbers of people from obtaining bank accounts. Excessive reliance on official documents and credit records has left many people out, contributing to the inequality and injustice of the global financial system. The new generation of digital banks is a challenge to this status quo, through a decentralized model, beyond the traditional paper identity. Innovations such as behavioral recognition models enabled by blockchain technology can help those who would otherwise not have access to banking services, giving them a financial identity and thus enjoying equal financial opportunities.

Moreover, traditional finance often gives people the illusion of ownership of funds. When money is deposited in a bank, many people believe that it is safe and expect that these funds will not be affected by any financial problems. However, this is actually an illusion created by traditional financial institutions. Banks have full control over these funds and use them for various purposes. The fractional-reserve model, used by many banks, carries obvious risks that banks could fail if a large number of withdrawal requests occur in a short period of time. The new digital bank provides users with a platform for non-custodial accounts, giving them full ownership and control of their assets and no longer relying on the management of a bank or other third party. This autonomy is especially important in times of economic uncertainty, helping to strengthen an individual's financial resilience.

Finally, traditional finance also faces huge challenges in data processing. Its centralized data processing model accumulates vast amounts of customers' personal information, leaving an opening for cybercriminals. The financial industry is the main target of data breaches, accounting for 27% of all data breaches in 2023. This centralized system leaves individuals vulnerable to cybercrimes such as identity theft and fraud, often with little accountability from financial institutions. New blockchain-based banks reduce this risk by decentralizing data. In this model, individuals are in control of their own data, and the transparency and security of blockchain greatly reduces the possibility of data breaches.

Taken together, the cracks in the traditional financial system are deepening. For years, banks have controlled the flow of money and decided who can participate in financial activities. This leaves billions of people excluded, whether because they lack documentation, live in remote areas, or cannot afford high costs. Clearly, the existing system is beyond repair and a new alternative is urgently needed. New blockchain-based banks are the best way to remove these barriers. Featuring decentralization, inclusiveness and transparency, these platforms represent the future of finance, enabling everyone, regardless of their location or economic background, to participate in this new financial ecosystem.