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The financial system is one of the most dynamic industries today. Banking institutions stand as the legitimate bodies responsible for distributing money and controlling its circulation in the economy in conjunction with central banks. Individuals globally rely on banks for a long time to provide financial services that suit everyone’s needs.
However, despite being the market’s authorized financial bodies, banks and other financial institutions still encounter major challenges that make them lag. Introducing cryptocurrencies to the banking sector guarantees massive efficiencies to the current crippling system and mitigate every issue accordingly.
Also, merging banks with blockchain technology can revolutionize the transaction system, maintain a transparent trading network, and elevate most cryptocurrencies’ values.
Problems Faced by the Current Banking Sector
The world’s unbanked population remains a huge concern as statistics show that approximately 1.7 billion individuals do not have a bank account. Even with unprecedented access to financial services, banks still seem to fail their customers who wish to be engaged. Below, we find out some of the major obstacles that hinder banks from progressing:
Banks and financial institutions have to comply with every regulatory standard set by a country’s authority. Following every compliance, the rule comes as an advantage and a disadvantage in that the institutions will remain trusted by many as a legitimate financial body.
On the other hand, the downside to it can be strenuous to banks as they fetch resources to remain at par with the latest regulations and implement the required changes. Failure to adhere to the regulations leads to the payment of massive fines for misconduct. The heavy fines may not be a big deal to larger banks, but smaller institutions may find the costs quite draining in the end.
Competition from FinTech Firms
FinTech industries provide a modernized method of operating and delivering financial services globally. As the world continues to progress in the world of technology, people get more interested in the advancements that will serve them in the long run.
Provided you have the appropriate devices like computers or smartphones, it becomes easier to execute your financial endeavors anywhere. Therefore, banks must adopt this concept to beat the current FinTech companies or merge with the technology companies to give similar advanced services.
Security concerns also pose a huge hindrance to the traditional banking sector. The institutions fail to implement appropriate security strategies to safeguard the funds, assets, and valuables. In the end, people incur huge losses, and to an extreme extent, cases of identity theft also occur.
Whatever service a customer needs right now from banks might not be the same as what they will prefer in the future. Therefore, consumer expectations continue to change, meaning that financial institutions have to keep up with their requirements. For instance, a study further indicates that millennials make up 47% of mobile banking users, meaning that they may prefer to interact with banks through social media handles.
At the same time, the older generation may prefer physical engagements to access financial services. This practical example explains why banks must meet every customer’s preferences, making it hard to fulfill all of them at once.
Benefits of Introducing Cryptocurrencies to the Banking System
Crypto mass adoption is slowly taking into effect as more users opt to bank and transact with decentralized ecosystems rather than centralized platforms. Incorporating cryptocurrencies into the banking industry will drastically change the financial markets, and here’s how banks are going to gain more efficiencies:
Eliminates Third-Party Intervention
Normally, banks usually involve intermediaries who monitor and authorize a user’s transaction. On some occasions, intermediaries are somewhat expensive as they insist on additional payments for rendering financial services to customers. Cryptocurrencies, on the other hand, give you the freedom to transact without the need for a middleman. That way, every crypto banking activity will be entirely in the hands of a customer.
Since a large portion of the population has access to internet services, it will ultimately be simpler for banks to reach mainstream customers for crypto banking services.
Mobile phones are also critical drivers that banks can leverage to provide transactional services in digital currencies. In a nutshell, if banks go digital and get on board the crypto space, they stand at a better chance of receiving and retaining new bankers.
Traditional banking systems charge large amounts of money for transferring funds, especially international remittances. Furthermore, the hefty fees could take out some portion of a user’s asset to cover the charges and finalize the transaction.
It consequently becomes a burden for investors and, at the same time, inconveniences them significantly. Nonetheless, adopting cryptocurrencies in a banking system will reduce the high costs meant for transactions making it the best alternative for investors to focus on and save large amounts of resources.
Unlike the current banking system, digital currencies work on a pseudonymous ecosystem. There is no need to indicate your personal information, which can be manipulated by other malicious users through impersonation. Most cryptocurrencies only require a wallet address for a successful transaction to be executed.
Incorporating cryptocurrencies in the banking sector guarantees users an immediate settlement of transactions within seconds. Banks can leverage this feature since payments with financial institutions go through unnecessary procedures that delay the transaction process.
Moreover, utilizing blockchain technology can speed up the processes as it barely experiences downtimes, which otherwise slows down the operations.
Digital currencies solve many inefficiencies we experience when accessing financial services. Through cryptocurrencies and the DLT, banks will maintain the utmost transparency levels encouraging users to trade on moral grounds.
Anyone can receive and send funds to their friends and families globally in a matter of seconds with cryptocurrencies. Additionally, banks will profit immensely once they decide to onboard cryptocurrencies as a legal tender aside from the usual fiat currencies.