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| By Jurica Dujmovic |
Just two days ago, I walked into a Croatian branch of a certain Austrian bank, optimism brimming, paperwork in hand. I was there to secure a small loan, a task that seemed straightforward — if not simple — on the surface.
However, my initial optimism quickly gave way to frustration. What was supposed to be an easy process morphed into an intricate dance of paperwork, opaque criteria and crashing mobile applications.
Minutes quickly turned into hours and in the end — to my disappointment — I was due yet another visit before my loan was secured.
This struggle is not unique to me. In fact, it has become a universal tale within the traditional banking system: a system that now teeters on the brink of disruption.
In the U.S., the situation is even more dire.
Decades of accumulating inefficiencies have led to a drop in the number of bank branches in the U.S., falling by 6.5% since 2012. Projections suggest this trend will continue, with the number of physical banks potentially dropping to fewer than 16,000 by 2030 — a count reminiscent of the 1960s.
Despite an increase in bank branches in the early 2000s, the tide has dramatically turned, with the U.S. losing 5,413 banks since 2013. If the current trends continue, all bank branches could be shuttered by 2034.
Now, this shift isn’t just driven by market forces; it reflects a change in consumer sentiment as well. In a survey, 46% of Americans voiced their belief that the current banking model needs an overhaul.
Adoption of digital financial solutions is increasing, with 34% of Americans having opened an online-only bank account in the past year. This trend isn’t going unnoticed, with more than half of Americans believing that online banks will outnumber traditional banks in the near future.
Even established banks are feeling the shift. For example, Bank of America (BAC) reported a surge in its mobile banking customers to 29 million digital users over the past decade, up from just 4 million.
Online banking — and especially blockchain technology — are at the heart of this transition, offering a solution to many of the problems that plague the traditional banking sector. They promise a future where transactions are quick, seamless, secure and not bound by geographical limitations.
And the potential of this technology isn’t lost on traditional finance executives. In fact, many of these individuals are leaving their TradFi roles to join the bustling crypto industry.
One such executive is Lisa Wade, CEO of DigitalX, which is the world’s first publicly listed blockchain financial company.
She transitioned from her role as head of innovation and sustainability at National Australia Bank to the crypto industry in December 2021. Wade told Cointelegraph that the freedom to innovate and take risks in the crypto sector is unparalleled compared to the banking sector.
Next up, Simon Dixon — CEO of investment platform BnkToTheFuture — initially tried to create a traditional bank in 2011. But he quickly realized the risks associated with fractional reserve banking.
After discovering Bitcoin (BTC, “A-”), he was drawn to the idea of a financial system where "funds are owned in self-custody, spent peer-to-peer and backed by full reserve math and code."
Our last example comes from a Fortune report from July 2022 that highlights two JPMorgan Chase (JPM) executives, Eric Wragge and Puja Samuel, who both resigned to pursue careers in the crypto industry. Wragge joined Algorand (ALGO, “D”) as its head of business development and capital markets, while Samuel took on the position of head of corporate development at Digital Currency Group.
This exodus of executives migrating from TradFi to crypto represents a significant vote of confidence in the potential of decentralized finance.
Shifts in consumer banking behavior and preferences, as well as the gradual decentralization of finance, are not merely trends … but indicators of a broader societal transition. The future of banking is rapidly unfolding, and it seems increasingly likely that it will be digital and profoundly different from the past.
However, there’s a dark side to this digitization trend: the advent of central bank digital currencies.
Although CBDCs are touted as the next phase of money's evolution and a possible response to the rise of cryptocurrencies, these government-issued digital currencies will most likely further undermine the TradFi system rather than invigorate it.
Essentially, CBDCs digitalize a country's currency and are controlled and issued by the central bank. As such, central banks stand to benefit the most from CBDCs, because they will gain unparalleled control over the money supply and economic indicators.
Now, this shift will most likely displace commercial banks from their age-old role in the financial system. Instead, central banks will essentially become the gatekeepers of the entire financial system, replacing commercial banks in providing loans, holding deposits and managing transactions.
Additionally, central banks will be able to directly interact with consumers, thereby minimizing — or even eliminating — the role of intermediaries (i.e., the traditional banking system).
Furthermore, CBDCs will put personal financial privacy at risk. With digital currencies fully traceable and under the control of central banks, the potential for surveillance is considerably heightened. Although this might deter illicit activities, it also enables unchecked surveillance on a citizen's financial transactions.
Despite these sobering prospects, there is a beacon of hope: cryptocurrencies.
Cryptocurrencies like Bitcoin, Ethereum (ETH, “B”) and countless others offer a viable alternative to both traditional banking and the specter of CBDCs. These digital assets operate independently of centralized institutions, preserving individual autonomy over one's financial transactions.
After all, the very ethos of cryptocurrencies — decentralization — stands in stark contrast to the implicit centralization in CBDCs.
Crypto assets also offer the promise of financial inclusion. Traditional banking systems, burdened by physical infrastructure and the need for paperwork, often exclude those in remote areas or without formal identification.
By contrast, cryptocurrencies only require internet access, opening up financial services to millions of unbanked and underbanked people worldwide.
Finally, with multitudes of cryptocurrencies to choose from, projects to invest in and financial tools to rely on, cryptocurrencies provide a power of choice. This is an antidote to the looming threats of centralization and surveillance posed by the advent of CBDC monoliths.
The future of finance is not a foregone conclusion, destined to be written by the highest authorities. It can be — and is being — shaped by the choices we make today.
So, let us not forget that through the power of cryptocurrencies, the power of choice is in our hands. Let us embrace it, champion it and use it to build a financial system that is by the people and for the people.
Best,
Jurica
