Banks hold a significant amount of power in today’s world. In 2015, following the recession, the five largest banks in the US controlled nearly 45% of the industry’s total assets. Today, typical consumers need bank approval for everything from getting a car loan to making everyday transactions.
At the same time, today’s banking system sometimes overlooks people in the modern economy: a recent survey by the FDIC found that 25% of American households are unbanked or underbanked; worldwide, that number rises to 69% of households. We see a need within the marketplace to embrace the power of decentralized finance and empower users to take greater control of their identity and finances.
Consumer data is also insecure when held by a large central authority. Just this year, Capital One faced a hacker attack that exposed the personal data of over 100 million people and included 140,000 stolen Social Security numbers and 80,000 bank account numbers in the process. Keeping your personal information in one centrally-held location significantly increases your risk; but despite this, users are asked to hand over their identity daily.
Financial institutions today are challenged with meeting consumers’ high expectations for fast and convenient digital banking processes, while also needing to mitigate fraud and comply with increasingly stringent regulatory requirements, as explained in Payments Journal. As such, banks are thinking more carefully than ever about compliant storage of personally identifiable information (PII) as they release more convenient financial products to busy, on-the-go customers.
There’s also a better way to make payments. It’s clear that banks have room to grow when it comes to better servicing consumers: there are inefficiencies in the way payments are made, and many worthy consumers are left without access to loans. Decentralized finance can alleviate the pain point waiting for a corporate entity to complete a transaction while taking a fee in the process. Civic believes there is a new way to make payments as the financial institutions formalize their digital transformation strategies. We believe the future of financial services is decentralized.
Why decentralization is the way forward
Blockchain technology presents a solid solution to the problems faced by people whose needs are not met by the current financial system With blockchain, a more direct route to consumers can be established, cutting out some of the middlemen and creating more efficiency for the consumer. Decentralization through blockchain offers a more secure, accessible banking solution.
What does decentralization look like? There are three key features to a decentralized banking system that give this alternative method of transacting a distinct advantage. Decentralized finance through public blockchain has the following benefits:
- It’s open: anyone in the world can connect to this network
- It’s distributed: records are stored on thousands of computers, adding security
- It’s “trustless”: no verification by a central party necessary
The benefits of blockchain technology– faster, cheaper, more accessible– are clear for banks. Blockchain permits anyone with an internet connection and a smartphone to access financial services, which will precipitate a significant reduction in the unbanked population.
More importantly, the paradigm shift to a DeFi model puts the individual in the driver’s seat, instead of being heavily reliant on antiquated centralized authorities. “In decentralized finance, users have custody of their wealth and can transact securely without validation from a central party. Meanwhile, in the current system, custodial institutions put people’s wealth and information at risk if they fail to secure it,” writes Visual Capitalist.
In a decentralized financial system, any stolen data will be rendered useless without the owner, reducing incidents of fraud and identity theft. As people migrate to become the center of their own personal data system through control of their own identities, the business risk of large data breaches is reduced.
When it comes to financial inclusion, many people say we should try and bank the unbanked. While that’s true, the true potential in the crypto world lies in unbanking the banked. It’s time to reformulate the banking system with better security and more affordable financial products for consumers.
For centuries, banks have been at the center of our financial ecosystem. Consumers have always needed a bank’s permission and blessing to operate financial transactions. Now, with the rise of blockchain, people will have more power and more choice in how they manage their finances.
Our Civic Wallet offers a way forward to decentralization. This wallet lets you share only the identity information that’s needed for the transaction – nothing more. Civic Wallet’s advanced ID verification minimizes the chances of fraudulent identities and misuse. The Civic Wallet brings best-in-class DeFi solutions to our broad and growing base of sophisticated users in one easy to use, secure and powerful app. Learn more about our vision for decentralized finance and join us in shaping the future of finance.