The banking sector is not keeping pace with Web 3.0
Crypto-native and crypto-curious businesses are creating a massive demand for transactions that is simply not being met by the traditional banking industry.
The banking industry has historically done a fairly good job of handling transactions. While cash still reigns supreme in emerging markets like India and Indonesia,
most payments in mature economies, from the United States to South Korea, are now mediated by banks. And banks have taken advantage of this business very well, with global payments revenue exceeding $2 trillion in 2019, before COVID-19 caused a slight decline. But there is a growing area of transactions that banks are unable to address – and which cry out for support.
This new frontier for commerce and payments is tied to Web 3.0, an emerging iteration of the World Wide Web that uses blockchain technology to enable decentralized token-based trade exchanges. Aiming to counter the dominance of Big Tech in today’s online environment, the Web3 Foundation describes Web 3.0 as “a decentralized and equitable Internet where users control their own data, identity and destiny”.
From a financial perspective, this means empowering individuals to exchange currencies, assets and valuable data without the need for intermediaries. An example of such exchanges is the exchange of non-fungible tokens (NFTs), which are unique data signatures attached to digital assets. Interest in NFTs has exploded in recent years, primarily due to their association with digital art.
Unlike cryptocurrencies, which have a common value tied to markets, the unique nature of an NFT means that it can have unique value, much like an original painting or sculpture in the physical world. This has made NFTs a popular way to prove ownership of online artwork, game assets, and other digital properties.
NFTs are perhaps best known for allowing digital artists to get impressive amounts for their artwork, with an NFT sale last year
net its creator, Murat Pak, the sum of 91.8 million dollars. More prosaically, NFTs are increasingly seen as a way to add unique value to digital products. Rock band Kings of Leon, for example, released an album last year in the form of an NFT which gave buyers access to special features, including front row seats for life.
Apps like these are driving renewed interest in blockchain-based transactions, not only from crypto-native businesses — those that use cryptocurrencies as an integral part of their value proposition — but also from what you might call actors “crypto-curious.” These are businesses that are not dependent on cryptocurrencies for their operations, but could still gain some form of competitive advantage or market differentiation from crypto applications. The NFT boom, for example, has seen art galleries around the world diversify their offerings into the digital arena.
Another example is the global hotel group, The Pavilions Hotels & Resorts, which announced in July 2021 that it would allow guests to pay for stays using any of more than 40 cryptocurrencies, including Bitcoin and Ethereum, thanks to to a partnership with the payment gateway Coindirect (a sister brand to BVNK). The move was clearly aimed at giving the Hong Kong-based company a unique selling point in the highly competitive hospitality industry. “We are proud to lead the industry and improve ourselves in the digital world with this exciting new crypto payment method,” noted founder and owner Gordon Oldham.
These crypto-curious efforts add to the momentum of blockchain-powered services, products, and collectibles. According to distributed DeFi app store, DappRadar, the blockchain industry grew over 500% year-over-year in the third quarter of 2021. Meanwhile, the NFT segment generated nearly 10 $.7 billion in transaction volume, an increase of 704% over the previous quarter. . “Space is completely evolving”
commented on DappRadar. “NFT projects are becoming more than just profile pictures.”
Enthusiasm for the growth of this sector is often tempered by concerns about its volatility, but the impressive values achieved by NFTs of works of art underscore the fact that a growing number of wealthy people view the assets as trustworthy investments. Additionally, as The Pavilions’ Managing Director for Asia, Scot Toon, pointed out, fiat currencies are not immune to price fluctuations. And the volatility of cryptocurrencies such as Bitcoin could be
should fall as institutional investors continue to flock to the market.
However, one barrier to the growing adoption of digital assets by businesses is the lack of support from traditional banks. Companies offering services and transactions based on digital assets still have to transact in fiat currencies with the rest of the world. These companies are calling for a service that can bridge fiat currencies and digital assets to manage payments, yield, exchanges and custody.
As the year begins, and NFTs and the metaverse feature prominently in industry forecasts, crypto-curious businesses want to embrace Web 3.0, even if traditional banks don’t see it yet.