Traditional Banking Is Archaic: How Crypto Is Keeping Up With The Needs Of An Increasingly Digital World

In the past two to three decades, various industries have transformed and embraced emerging technologies such as artificial intelligence (AI), robotics, and distributed ledger technology (DLT). Companies within fintech, manufacturing, logistics, real estate, healthcare, security and education are experimenting with these new and innovative technologies, proving their commitment to innovation and improving existing processes to make our lives easier.

An apt comparison is to the internet in the 1990s – while many businesses were quick to adapt to the changing times, others were resistant to changing their offerings. This is perhaps why Blockbuster, Toys “R” Us and Kodak, among other previously successful companies, went bankrupt.

Looking at the last 20 years, it’s evident that traditional banking in particular has been resistant to embracing new technologies, while newer fintech companies blaze a trail of innovation. The traditional banking systems have remained ingrained in archaic practices, such as paper cheques, receiving bank statements via post and an overall lack of digitization within processes. While this may suit a certain smaller percentage of the population, many no longer like being confined by a location or time of day. There is an evident lack of customer focus in current banking solutions – a direct result of their lack of evolution.

Current Status of Traditional Banking
To date, there has been a lack of change within many of the incumbent banks and financial institutions, which have not adapted to the evolving technical landscape and embraced emerging tech as quickly as other industries have. The result is a poor customer service experience that is archaic, inefficient and insecure when compared to the newer challenger solutions.

The ineffectiveness of banking is perhaps well illustrated by a recent experience; I asked a bank in Gibraltar to transfer money to a bank in the UK. In order to do so, I had to fill in a document (archaic), get two manual signatures (inefficient) on it, email it (insecure) wait for a confirmatory phone call (inefficient). One week later, I found out that the bank’s internal system didn’t add the correct correspondent bank information for the SWIFT system, and the transfer was rejected. Bank A then re-sent the funds, and weeks later they still hadn’t arrived. After chasing multiple times, an email chain with 60+ replies and calling the Directors of both organisations, the funds finally appeared in the account 6 weeks later, it also cost me 30 euros for one transfer. During that time, neither party could tell me where the funds were, neither could track them via SWIFT and both told me it was the other ones problem to look inside the black box and fix it. This is a simple example to show how inefficient, ineffective and expensive the SWIFT system is – as neither of the banks seem to be able to tell each other where the money is, and neither bank will take ownership of resolving it. In this specific example, we ended up calling the correspondent bank directly and through social engineering moved the issue along – this shouldn’t be necessary in a functioning system.

The Alternative: Crypto Payments
In contrast to inefficiencies in traditional banking, solutions have emerged that make our lives easier. Crypto and decentralized payment systems have presented a more efficient, secure, and cheaper alternative to traditional banking. By removing intermediaries, the transferring of funds across borders is done with ease, and the customer has full control and visibility throughout the entire process.

In comparison to the example I provided above regarding a fiat transfer, when we had to transfer crypto funds, we were able to send a reasonable sum in 30-60 seconds to the other side of the world. It passed through no intermediaries and all the steps were transparently visible to all parties involved. As a cherry on top, it only cost us a few cents. Why would we as a society possibly choose SWIFT over this option?

Looking to the Future of Finance
While crypto hasn’t quite yet reached widespread mainstream adoption, key players in the institutional finance space have begun exploring the potential of blockchain technology. Apps such as Revolut, N26 and Monzo have steadily increased in popularity, proving that disruptive digital banking alternatives are in high demand. As more global crypto regulators engage with crypto over the coming months and years, I believe we will see more people look to crypto and other digital-based solutions for their banking needs. Governments are already issuing birth certificates, accepting crypto as taxable income and in some cases even allowing payment of taxes in crypto. HSBC has now issued its first crypto denominated letter of credit and others are testing the waters the change is coming and it is speeding up. When will the core shared infrastructure between these systems keep up, or be replaced by solutions like Ripple or Stellar – or is SWIFT about to become the next Kodak and miss the boat?

In order for today’s banks to keep customers, they need to accelerate their digital adoption and evolve their processes in order to keep up with the needs of their consumers. For this to happen, there needs to be a complete overhaul of the end-to-end customer journeys, designed to match other key players and solutions in the space. More flexibility, transparency and accountability is also essential in order to move forward. Consumer behaviour has changed, and our demands have followed suit. If banks don’t adapt to the changing needs of their digitally-minded consumer base, they will likely be left behind as more people turn to options that offer increased efficiency, transparency and security at a lower cost.

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