Conventional Banks Join Forces with FinTechs to Leap into the Future of Banking

26 October 2021
7 min read
Conventional Banks Join Forces with FinTechs to Leap into the Future of Banking

Blockchain was one of the most popular financial terms of the last decade, and for a couple of years, we are seeing the real effects of cutting-edge technology. The one industry that nobody thought would face a disruption has found itself in the midst of a post-modernist approach, and blockchain technology is one of the biggest elements to disrupt finance in general. Since cryptocurrencies started to gain traction and attract more and more people every day, they have been the primary trend of the finance world. And believe it or not, cryptocurrencies eventually are going to affect and transform whatever comes against them. As expected, one of the first things to be transformed with the emergence of cryptocurrencies is the traditional banking industry. 

But before delving into how cryptocurrencies may affect the conventional banking industry, we need to clarify what is a cryptocurrency and why banks may feel under threat by the revolutionary technology that is the blockchain. 

How does crypto work?

So, to put it simply, cryptocurrencies are decentralized digital currencies that are impossible to track since they are constantly encrypted. Unlike traditional banks, cryptocurrencies are transferred on peer-to-peer networks and created in open environments without government policy restrictions. Like online banking, cryptocurrencies are stored in online, encrypted digital wallets. But the main difference and the decentralized nature of the cryptocurrencies is caused by the way money gets transferred between peers. When a transaction is issued, the encrypted information about that transaction is processed by different ends of the blockchain network. After the network approves the transaction, the ‘block’, which is the implication of an individual transaction, gets added to the blockchain network in an encrypted and untrackable way. 

Does cryptocurrency threaten traditional banks?

If we are to look at the current responses to cryptocurrencies from the banking industry all over the world, the answer is both yes and no. According to their stances against blockchain technology, countries showcase different implementations regarding cryptocurrency and policies revolving around the legibility of digital currencies. In Vietnam, for example, all virtual currencies are deemed unlawful ways of payment. Besides Vietnam, China is also among the countries that ban cryptocurrencies. On the other hand, some countries pose a much lighter approach to cryptocurrencies like Australia. Head of Payments at the Reserve Bank of Australia admits that blockchain technology can enable new possibilities and offer unique solutions for regular banks. And, there are reports that The Bank of England is also doing research on if it’s possible and sensible to create a central bank-owned digital currency. 

Regarding the various responses to cryptocurrency at the moment, one may ask why the banking industry and governments are acting attentively against the technology. According to the research of ACAMS, 63% of the banking industry worker respondents think of cryptocurrencies as a risk rather than a beneficial technology. And as we formerly mentioned in the article, the first and primary reason is the decentralized nature of digital currencies. For a government, bank, or any kind of agency, a decentralized currency means that their authority over the flow of money in the market is non-existent. Since the data and information regarding the digital currencies are stored in a peer network and not a singular server, sometimes it leads to discussions about its legitimacy and its possibility to be used in illegal transactions. Also, cryptocurrency transactions are made between peers with unique transaction IDs rather than having a mediator between two ends of the transaction like in the traditional banking system. This allows users to make transactions in much shorter times without paying transaction fees to external parties. The ease of transaction also creates a drastic difference between banks and blockchain that may give the idea that cryptocurrency may replace the banking system someday. But on the contrary, with the correct implementation, the banking system, as we know, can greatly benefit from blockchain technology.

How can the traditional banking system benefit from cryptocurrencies?

Faster & Cheaper Payments

The speed and cost difference between the payments done with digital currencies and with traditional banks is one of the biggest advantages cryptocurrencies have over banks in day to day usage. Inheriting blockchain technology, especially international payments, can greatly benefit banks since the costs and time needed for the transaction are significantly reduced. This is not something unseen either; an Australian bank, Westpac, has already teamed up with Ripple for a cheaper international payment solution in 2016. Besides that, the US Federal Reserve has also been working with IBM to create a digital payment system entirely based on blockchain technology. 

A Seamless Banking Organization

With the inclusion of blockchain technologies in the banking system, banks can overcome difficult organizational challenges. We already mentioned The Bank of England’s research on the possibility of a digitized version of the pound and how blockchain can evolve RTGS (Real-Time Gross Settlement). Creating a digital currency can crucially help central banks to maintain financial stability and control the monetary value of the country’s currency with a much faster and streamlined process. Also, blockchain can provide much more efficient networks to conduct all their businesses, not just low-cost payments and faster transactions. A decentralized finance app, Circle, lets its users transfer both cryptocurrencies and traditional currencies while running on blockchain technology. This is an important step for providing users with blockchain-based peer-to-peer transaction opportunities that are much more efficient and affordable.

Changing The Purposes of Banks

Even though cryptocurrencies may sound like they are the future of finance, there are a lot to be inherited from the traditional banking system before the complete transformation, if it happens of course. Currently, crypto companies lack the abundance of financial services banks provide such as credits and loans. Because of that, banks may start acting like supporting institutions to crypto companies and introduce these useful financial services to the world of cryptocurrencies. Recently, Visa announced its neobank project, First Boulevard, which can also be used for cryptocurrency purchase and integrating it with banks. This itself shows that FinTechs are finding their ways into the conventional banks, and it’s certain that the change will not be temporary. Also, a Brazilian mobile blockchain platform Credit Dream, brings lenders and borrowers together for a loaning system that favors the individuals and small businesses rather than prioritizing bigger companies. 

Your Next Step Towards the Future of Finance is Ready

There’s no doubt that banking will not look like it is today in five years, and here at Tmob, we are perfectly aware of the disruption. Thanks to our years of experience that comes from our clients from every industry, we manage to always keep our platforms up-to-date, and taking advantage of the blockchain and cryptocurrency technologies is a big part of our near-future vision.  With our E-Banking and Mobile Financial Solutions Platforms, we are helping banks, neobanks, FinTechs, and any kind of brand who wants its share from the new financial order, and the best part is, anybody can join the game with our tailor-made, customisable platforms. Discover what you can do today with our platforms here, and we’ll make sure that you’ll always be one step ahead of the financial game. 

Who are We?

Tmob | Thinks Mobility is a global technology powerhouse, specialized in digitalization and integration solutions, bringing growth and success to businesses and partners with its innovative SaaS, PaaS, and premium solutions since 2009 with Tmob Turkiye (TR) and Tmob United Kingdom (UK) headquarters.






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