Fintech’s New Wave of Innovation Fueled by Web 3.0

Fintech has come a long way from being just a buzzword for the next big thing. In the last 10 – 12 years, fintech has witnessed a great expansion, both in terms of market size and features. According to Market Data Forecast, financial technology is expected to land up to USD305 billion globally by 2025, its growth fueled by rapid consumer adoption and by SMEs in the banking, payments, and insurance space that have turned (and will continue to turn) to fintech.

Indeed, inflation and the threat of recession bring a lot of challenges at the moment, yet this also forces companies to become more efficient with their processes and spending, to adopt new and better operations and to make efforts to serve all categories of people. Transparency, affordability, and accessibility are key to the future of fintech. But so is technology, which has been playing the bigger part from the beginning.

As fintech develops and moves further from customer-facing apps that were the first barrier in making finance more open to the people, it also addresses the underlying matters of automation, cybersecurity, and regtech, to name just a few. Cutting-edge technologies such as blockchain and the advancement of web 3.0 are already impacting businesses enabling them to think of a new wave of fintech innovation to change the rules of the game once again.

Web 3.0 kicks off the era of decentralized economy

Web 3.0 (or web3) is the inevitable next step in the evolution of the internet and the largest one so far towards a truly digital, global economy. Emerging as a response to a series of events that have shaped the latest decades – such as the 2008 financial crisis, the advent of technology, the launch of Ethereum in 2014 and the pandemic – web3 is already redesigning the way we do business.

Although the third generation of internet service is growing fast, there is still a lot of debate on what exactly it is, how it works and what it means for businesses. However, one thing is certain – web3 is powered by blockchain, NFTs, artificial intelligence, big data and machine learning. In short, what web3 aims to do is use these pillars to put people in control. According to Ethereum, the four main components of web3 will disrupt the landscape:

• Decentralization – currently we are relying on a handful of entities to handle and control the internet. With web 3.0, the goal is to give the power to creators and users, enabling information-sharing and ownership all over the world.
• Permissionless – as the ownership gets distributed, everyone can get equal access, people do not need permission to use a blockchain protocol, DeFi platform, or any related system.
• Native payments – this is when cryptocurrencies get into the driver’s seat and become the main commodity for spending and sending money online instead of relying on banks and payment processors. People without bank accounts or those residing in “not-approved” countries are no longer excluded.
• Trustless – in a similar manner, web3 does not count on trusted third parties, but on incentives and economic mechanisms. A trustless system has a process in place where all participants can reach a consensus without anyone exerting authority and without needing to know or trust each other.

The future of fintech under web 3.0

As web3 will make its mark on all businesses, the financial technology scene has already started to shift towards a more efficient and accessible industry by reaping the benefits of the third internet era. With decentralized finance (DeFi) as the core of the new internet infrastructure, fintech companies have countless opportunities to improve their business processes, making their services more transparent and easier to access.

First of all, we are talking about an easier and faster onboarding process due to decentralized networks. With blockchain, the onboarding process can be smoother and seamless and, most importantly, more inclusive regarding who can join. For users, web3 onboarding offers quick access, social logins and even BYOK (Bring Your Own Key), while for companies and banks the onboarding becomes a one-off process:

• The company adds their data to the blockchain network
• They allow their bank(s) access to the data.
• One bank verifies the data
• If agreed upon by the company, the data is then shared with the other members of the network

This will allow more traditional financial companies to turn to fintech, to offer new and alternative financial products anywhere in the world, enabling users to have complete ownership and control over their online data.

Second of all, the fact that it is equally distributed and user-controlled will lead to a more powerful fintech community, where both companies and people will work together to create a more interconnected and innovative financial services sector. For so long this was a unilateral process where institutions were offering limited services and high-interest rates to only a group of people, where regulators added extra complexity without understanding companies’ or consumers’ pains. With all the benefits that Web 3.0 brings, every player involved gets the opportunity to contribute to the digital transformation of traditional financing.

Third of all, web3 will also give people back their time, enabling faster transactions and fewer processing times. Powered by web3’s automation, transactions will happen in real-time and more transparently. The increased efficiency of secure peer-to-peer transactions will also determine a reduction in processing mortgages, loans and subscriptions.

Last but not least, the use of blockchain technology to handle all the operations allows for better management and response to security risks. Starting with the decisional layer of an organization, a decentralized system allows each department to handle their own policies, aligned with their own business model. This means that employees take greater ownership of risk and there is more awareness of information security company wide, with it being embedded in each department.

From a technical standpoint, the decentralized approach is no longer dependent on privately managed encryption keys which, if not handled properly by users, could have allowed malicious access to private data. Instead, encryption is a built-in component of the system, handled by the system itself, making it easier to enable private information to be shared securely, while users remain in full control of their data. Decentralized data platforms and digital identity solutions are vital in protecting user data and it is mandatory to leverage them to create a safer and more sustainable data-driven ecosystem.

As with any new development, web 3.0 is not without its shortcomings and fintechs, as well as other companies in different industries, will have to take extra caution in defining their strategy and reshaping their business model. However, blockchain and the other cutting-edge technologies linked to web3 bring unprecedented advantages and growth potential.

We are here to support companies in navigating the challenges of the next internet era and to provide hands-on experience in building sustainable, accessible and efficient fintech solutions.