cryptopolitan.com
Crypto infrastructure has shown a willingness to carry out bank-like operations, leading to a trend of neobank launches. Recent conflicts, however, raise the issue of crypto’s readiness to host neobanks.
Crypto networks have been proposed as venues for neobanks multiple times. The rise of crypto payments also coincided with other digital neobanks, which used conventional technologies.
As Cryptopolitan reported earlier, one of the key issues for crypto-based banking is the ability to pay yields based on stablecoin ownership. The contentious question is still not resolved for users in the USA, as there is still a discussion on competition with mainstream banks.
Other bank experts have mentioned stablecoin issuers should not be able to pay interest, potentially closing the path to crypto neobanks.
Crypto neobanks seek a common standard
There is no one standard for crypto neobanks, for either the services offered or the digital infrastructure. Some apps and organizations, like Coinbase or Metamask, handle the payment side of banking. Almost all crypto apps and wallets can be used for simple payments.
Crypto payments coincided with the rise of SoFi, Revolut, Wise and other similar fintech payment services, all offering almost interchangeable user experiences. Crypto may offer a similar experience, with the added layer of permissionless or even private transactions.
For some, the true form of on-chain banking would be a DeFi bank. With the current DeFi infrastructure, the potential of neobanks goes beyond payments and remittances. They would allow borrowing and saving with interest, completely based on blockchain finance.
The challenge for neobanks would be to ensure accurate risk assessment.
Relying even on the best lending protocols may be too risky by banking standards. While crypto rails exist for interest-bearing lending, the protocols are still threatened by a loss of liquidity, attacks, or the effects of the crypto market.
Is crypto ready for neobanks?
Crypto has matured beyond the period of being a playground for outsized gains. Now that the market is more conservative, attention has shifted to the potential for more reliable yields. Existing neobanks like Revolut and Kakao have also made forays into crypto, potentially using their reputation and profile to add a new payment toolset.
Over time, crypto developed native solutions for multiple steps of the banking product. Wallets took the payment app niche, DeFi lending offered yield, while some protocols offered automated savings.
One of the main obstacles to adoption was complexity. To achieve a full neobank, crypto must shift to more similarities with mainstream neobank apps.
So far, the biggest success in adoption comes from crypto cards. The familiarity of these new products has encouraged adoption, especially in using stablecoins. The biggest success comes from self-custodial neobanks, which also carry cards.
Larger entities like Crypto.com control most of the market, but additional activity comes from projects like TRIA, for direct crypto spending.
Crypto neobanks also have a problem with fake platforms offering investments, while stealing funds or asking for outsized fees.
The other problem for neobanks is ensuring privacy and maintaining a regulated status. A crypto neobank on a public chain may still expose too much data that can be linked to real entities, posing a security risk. The other big problem is that “crypto neobank” turned into a new narrative, leading to thousands of app launches and outsized competition, without singling out the best and most influential project.