We have the invention and evolution of technology to thank for some of humanity’s most significant advances. The invention of the telephone in 1876, the aeroplane in 1903, the computer in 1937, and the internet in 1974 all completely changed how we live our everyday lives. As technology advances, how can the likes of web3, the metaverse, blockchain and DeFi change the future of fintech?
Throughout March on The Fintech Times, we consider the topic of innovative technology and which inventions and evolutions could have the biggest impact on fintech.
While our first week of coverage delved into everything you need to know about the perplexing world of the metaverse, here we round off our second week of innovative technologies by looking at the wider picture of web3, and more specifically, how promising developments in this sector are paving the way for a new generation of fintech innovation.
Joining the conversation today are experts from across the industry spectrum, including Gateway.fm, SafePal, Xero, New York University and Hadean.
Finding new funding
So without any further ado, how is the rise of web3 opening the door for fintech innovation?
Launching our conversation is James Bergin, the executive general manager of technology strategy and integration at the New Zealand headquartered accounting software company Xero.
Bergin starts by recognising the significant level of transformation experienced by financial services over the past decade; citing embedded finance and open banking as two notable areas of this activity.
“These types of changes have been largely driven by a combination of regulation and demand for financial inclusion and for fast, simple access to financial products in platforms and tools businesses already use,” explains Bergin.
Furthering this observation, he agrees that the advent of fintech platforms has allowed customers to gather “rich and reliable” information on their health and cash flow.
The availability of such an insight to smaller businesses specifically is, for Bergin, “helping remove some of the long-standing barriers that have impacted businesses in accessing traditional lending.”
“Innovation means creating new things to change something established,” he continues. “The wave of invention in web3 technology is unlocking the further potential for innovation in changing what is established about sourcing funds – also known as decentralised finance (DeFi).”
“This is an evolving area where new sources of capital are being made available without leveraging traditional centralised banking infrastructure,” adds Bergin.
Bergin advises fintechs to explore providing more educational resources to help businesses understand exactly how to use these technologies to source and allocate capital, including the impacts they could have on small businesses so that fintechs can capitalise on the transformative potential of web3.
A more open and decentralised financial system
Leading on from this, Mimi Keshani, COO and co-founder of Hadean, the deep-tech cloud computing company that’s powering the creator economy of the metaverse, recognises the capacity to build DeFi apps as one of the main benefits of web3, namely because they enable the provision of financial services without the need for intermediaries like banks or other financial organisations.
As Keshani explains, “this has the potential to upend the current financial system and increase everyone’s access to and affordability of financial services.”
She also points to web3’s ability to enable fintech innovation through the use of smart contracts.
Keshani explains how smart contracts directly encode the details of an agreement made between a buyer and a seller into lines of code.
“These contracts self-execute making it possible for financial transactions to be automated and completed quicker, more effectively and with fewer errors,” she says.
Turning her attention towards digital assets, Keshani states that non-fungible tokens (NFTs), which represent ownership of distinctive digital goods like artwork or virtual real estate, are one of the new forms of digital assets that web3 is helping to create; “potentially opening up brand-new markets and sources of income,” she adds.
“In general, the growth of web3 is resulting in a more open and decentralised financial system, which is promoting innovation in fintech and opening up new business prospects for entrepreneurs,” concludes Keshani.
A blank canvas
“There is an exciting web3 play for fintechs around value-added services, improving system security and mitigating the risk of fraud,” shares Cuautemoc Weber, co-founder and CEO of Gateway.fm, the developer of web3 infrastructure and tooling products.
Weber recognises how, much like how web3 addresses a litany of legacy web2 issues for end users, web3-powered innovations can deliver a “host of efficiency gains for fintechs across the industry spectrum.”
He puts forward web3’s ability to help streamline cross-border payments by circumnavigating intermediaries and reducing transaction fees as an example of this.
“Experimentation has always been the core driver of fintech innovation,” continues Weber, “and the web3 landscape provides an open canvas for new innovations to crystalise.”
“Today, a new breed of developers are empowered to build new financial applications and test them on decentralised networks, broadening the parameters of fintech innovation considerably,” he adds.
Weber sees the presence of greater transparency and security as two of the main benefits of DeFi applications, allowing for the creation of smart contracts that automate financial transactions.
However, he warns that web3-led innovations mustn’t alienate legacy users. “It’s a fine balance between offering unique new value, without undermining the proposition that attracted users in the first place,” he explains.
Nonetheless, “it’s no surprise that there’s a conveyor belt of fintech industry players looking to expand their service scope and tap into the opportunities presented by web3,” concludes Weber.
The new face of the worldwide payments network
Here Veronica Wong, CEO and co-founder of the cryptocurrency wallet SafePal, emphasises the abundance of benefits web3 is generating for the transactional ability of the latest fintech innovations.
Explaining this, she says that at its basic core, web3 offers payment and transfer solutions that are “much more transparent and immutable with fewer geographical restrictions.”
“It can cost less than a dollar to transfer money overseas using the right blockchain networks with much faster processing times,” continues Wong.
In terms of value transfer and accrual, the advent of physical asset tokenisation, such as gold and real estate, is as Wong sees it, allowing these two elements to become more seamless.
In this way, “public blockchains can serve as a ledger of records to reduce the need for intermediaries and paperwork,” she adds.
“There have also been experiments with bringing treasury bonds on blockchains, showcasing the potential for banks to offer investment products globally to users,” continues Wong, which she describes as “a boon for the unbanked.”
As the fintech industry becomes more familiar with web3 infrastructure, such as those supported by SafePal, Wong agrees that “these value propositions will become more seamless, secure and reliable for use on a larger scale.”
Fintech meets web3 meets fintech
Concluding our discussion on how the rise of web3 is facilitating a new level of fintech innovation is Jarrod Barnes, a clinical assistant professor of sport management at the New York University’s School of Professional Studies.
“One of the simplest use cases for web3 is stablecoins, which allow for convenient and secure transactions without the need for intermediaries,” Barnes starts.
Despite many feeling more comfortable using traditional banking systems, stablecoins are gaining traction due to “their value proposition of making financial transactions faster and more efficiently, with currently ~$135billion of stablecoins in circulation,” he explains.
However, Barnes admits that the adoption of web3 technology is still in its early stages.
“The number of people participating in web3 is relatively small,” he comments. “There are around 30 million monthly active Metamask wallets, a good proxy for self-custody and interaction with applications beyond just investing, and many of the use cases are still in the development stage.”
With this, Barnes explains that web3 projects aiming to onboard the next billion users, such as gaming and social products, “often feel rough and early, with a focus on financialisation rather than user experience.”
He concludes that as the industry matures and develops better infrastructure, it is opening the door for fintech innovation to focus on delivering a better user experience while retaining the advantages of the technology.