The last 20 years we have seen an explosion of disruption to the wider financial industry led by Fintechs, from NeoBanks to any company providing financial services on top. Besides these new entities making it easier to operate financial transactions i.e. via simple use of an APP or a QR, something is still lagging. There are approx +1.5bn persons lacking access to financial services globally according to different sources. Frictions it stills there, i.e. to move funds across countries, and it is costly to operate.
Fintech companies managed to disrupt the Financial industry itself in the last couple of years. However they have not managed to jump into the DeFi space, we believe perhaps that is due to 1) frictions, 2) lack of knowledge, 3) regulation/compliance. However, those who are in the DeFi space knows that the decentralized system is more efficient than the legacy world in terms of cost and speed to mention a few.
We believe that Blockchain will become the backbone of the financial infrastructure of the future. This would not imply that current players will simply disappear, but our vision is that both systems will coexists and become inter operative.
Some samples of disruption in legacy systems in the past, are the WhatsApp case and VoIP players like Skype. Thus, Telecom players used to have a cumbersome infrastructure to manage their two main business lines: 1) Voice and 2) Data: meaning mostly SMSs. Telecommunications companies across the world had infrastructure to not only provide the SMS services for their users, charge them, led customer support, sales teams and so on. Disruption came from players like WhatsApp. It all started with US foreign communities sending messages abroad at cero cost and frictionless via WhatsApp. The same happened with long distance calls and the Voice services being disrupted before by Skype and then other players.
What has happened since then? Did Telecommunication companies disappeared? Not at all, we still have them. They had to consolidate, become leaner, and adjust to the new realities; and this is a similar trend we see with DeFi.
Lets take a look at one basic services in any Fintech provides (ie. savings accounts):
- Savings accounts: if we look at the US, let’s use two examples. One of them is https://squareup.com/us/en/banking/savings which is offering their millions of users an APY of 0.5%, or let’s take it to a typical Bank for Startups https://mercury.com/treasury offering Start ups a mere 0.1% APY. If we consider an inflation of 5–6% this 2021, we then see negative real rates. In DeFi this rates can be improved by various orders of magnitude and user experience become frictionless. This will make the end user to benefit in the end.
DeFi solves this and many other problematic uses for the Fintech space. However, we must educate and make this bridge as core principle for the wider DeFi community to keep on innovating and growing further.
AAVE ARC, Compound Treasury are some of the players starting to work with the legacy systems.We identify many ways in which this can be tackled in the future, and we are here to help, because as nasdaq.com mentions “ The Fintech teams who are treating today’s interest in digital assets as a passing fad are missing the bigger picture: this is the Internet coming for their business. They should be working to adapt to this new technology just as their surviving predecessors did 20 years ago with the rise of web 2.0. “ (https://www.nasdaq.com/articles/defi-is-ready-to-disrupt-fintech-2021-06-22, 2021).
At 2PI we are building the infrastructure that will connect Fintechs with DeFi seamlessly. We aim to create a symbiotic system, in which the end user experiences DeFi on-top of Fintech environments, leveraging the blockchain financial infrastructure.
This we believe, will bring DeFi SuperPowers for Fintechs!