The internet has undergone some major disruptions and changes over the last few decades. Web 3.0, the third generation of internet services, is the most recent in this long line of changes. 

Web 3.0 will transform the way in which we interact, work, transact, and learn. Web 3.0 will do away with the need to centrally monitor, store, and categorize data. Blockchain and other decentralized technologies will allow our data to remain safe and secure. Long story short, Web 3.0 will be ruthless, permission-less, and trustless. 

How Will Web 3 Impact the Banking Industry?

AI and ML

It took around a decade for us to transition from Web 1.0 to Web 2.0, and it is likely to take at least as long for us to take the jump from 2.0 to 3.0. However, sooner or later, this transition will occur, and Web 3.0 will be fully realized. The third generation of the internet will make use of ML (machine learning) to create more intelligent, transparent, and connected websites. 

AI (Artificial Intelligence) will help minimize costs for financial institutions, and help identify new sources of revenue. Different types of financial firms will use AI in different ways. However, most investment and FinTech firms will use AI to implement algorithmic trading, portfolio optimization, and fraud detection.

Banks, meanwhile, will leverage the power of AI for optimizing sales and marketing processes, recommendation systems, and fraud detection. Lastly, consumer banks will be able to utilize AI not just for fraud prevention and detection, but also for customer retention and acquisition. In addition, AI will also help consumer banks up-sell and cross-sell customized financial products and services. 

The Canadian Royal Bank is already using millions of data points to train its AI system. As a result, the bank has been able to reduce client complaints, and quicken the delivery of new applications for its clients.

Meanwhile, the leading cross-border payment service provider of the world, BNY Mellon, has successfully trained its ML and AI models to forecast fraud, and have been able to increase the systems’ accuracy by 20%.

The combination of AI and high-performance computing is also being used to produce quicker and more accurate intelligence for investors and traders, by researching and analyzing market data in small fractions of a second. 

However, the FinTech sector has witnessed what is perhaps the most disruptive innovation in the world of AI. NerdWallet, for example, makes use of ML to recommend the best mortgages, insurance, and other financial products to its customers.

The organization’s recommendation engine is feeding on numerous profile features, including credit score and history, credit utilization, and outstanding debt. Using these features has allowed the ML system to familiarize itself with the underwriting criteria and process, thereby making it that much more effective at identifying the most suitable products for each client. 

The Rise of DeFi and Cryptocurrencies:

DeFi (Decentralized Finance) is an umbrella term used to define financial services and products that are accessible to anyone with an internet connection. These services and products are open and transparent, and are not driven by a central authority that can deny access or create other blockages. 

If Web 3.0 is truly decentralized and will be driven by blockchain technology, DeFi might have a defining role to play in the financial industry. But, in addition to that, we might also be able to witness the worlds of DeFi and CeFi (Centralized Finance) coming together. The organizations that are the most committed to bringing these two worlds together stand to make the most developments and innovations in financial service. 

DeFi will serve as the analgesic for a number of pain points associated with its centralized counterpart, such as inaccessibility to financial services or bank accounts; apprehension that the financial system will be brought down by the government or other powerful institutions; hidden and premium charges; delay and risk  in money transfers caused by human or manual internal processes. 

How Will DeFi Work?

DeFi will make use of smart contracts and cryptocurrencies, and will therefore not need a financial institution to serve as a guarantor. The smart contract will be able to send, transfer, or refund money to and from one party to another, doing away with the need of a financial institution to overlook the entire transaction. This also means that DeFi will get rid of transaction charges and other fees associated with such middlemen.

There are numerous use cases for DeFi, such as:

  • Sending money throughout the globe
  • Streaming money throughout the globe
  • Accessing stable currencies
  • Borrowing funds even without collateral
  • Starting crypto savings
  • Trading tokens
  • Managing an trading portfolio on a single platform

Final Word:

To sum up, we have already stepped into the world of Web 3.0, and the banking and financial sector is going to be majorly disruptive for the better. To know more about Web 3.0 and its expected impact on the world, please feel free to check out some of the other blogs on our website.