The Impact of Blockchain Technology: Neo Banks versus Traditional Banks

The popularization of blockchain technology has greatly impacted the financial sector, especially when comparing Traditional Finance (TradFi) with the new trends of Decentralized Finance (DeFi). Blockchain technology enables the streamlining of payment processes, complex workflows, decentralized ownership and optimizes internal processes. In general terms, the technology gives the banking industry a digitally inclined structure that enables banking end-users to explore different services online easily and carry out their transactions seamlessly.

However, by using blockchain technology, Neo Banks have the potential of disrupting the traditional banking system. Neo Banks offer a wide range of services to customers, including customer acquisition, remittances, utility payments and money transfers.  This sounds interesting, right? Read further to get the full gist.

Neo Banks versus Traditional Banks

With blockchain technology, customers are guaranteed enhanced accuracy, expanded ownership, and improved security, as well as speedy transactions in the banking industry. It also ensures that no mismatch of inventories or fake invoices are carried out.

Neo Banks can operate through Dapps by providing consumers with innovative services at low rates and fees. They rarely have physical offices or headquarters like Traditional Banks, which use an omni-channel approach.

Traditional Banks, on the other hand, have both an online and physical presence (branches and ATMs), offering a wide range of products and services.  However, they operate manually, as many of their inner workings are built on unconnected and incompatible systems.

Neo Banks have one-tenth of the acquisition cost of a Traditional Bank. For example, their operating costs per customer in the United Kingdom is between $25 to $63, compared to over $210 for Traditional Banks. With multiple blockchain projects in the pipeline, there is a possibility that Neo Banks will gain more custom in the future.

However, unlike Neo Banks, Traditional Banks have a brand value, and most consumers trust these brand processes – however, these same customers may also distrust these processes in the event of the slightest banking error.

Indeed, Neo Banks do not offer the full range of banking experiences like Traditional Banks, especially for non-tech savvy consumers. This may not matter for the time being,  because as Web3 and the metaverse continue to evolve, more people are learning to enjoy the comfort of virtual or online banking. This allows people to argue that Neo Banks are gaining qualitative and quantitative traction.

In conclusion, Neo or Digital Banks, powered by blockchain technology, will continue to shape the patterns of banking and the experience of users. As time passes, Neo Banks will help consumers and SMEs with real-time data on all inventories, yet they cannot also operate without the Traditional Banks due to the issue of regulation.

The bottom line is that there are promising opportunities for both Neo Banks and Traditional Banks, even with the growing adoption of blockchain technology. Maximizing those opportunities, however, depends on how well both types of banks utilize the advantages and mitigate the disadvantages of adapting blockchain technology to their structures and operations.