4 services that banks offer but Defi does better!

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Banks offer lots of beneficial services and we have been used to them for many years now. Before the emergence of decentralized finance and blockchain technologies, we use to rely fully on banks for everything related to finance. Of course, we had no other option so the choice is automatically going to the bank. But since Bitcoin came into the finance space more than a decade ago, everything has changed. Blockchain technology continued to get better and today, we have decentralized finance competing with and outdoing the banks in many aspects of finance.

In this presentation, I want to look at some of the services we had trusted the banks to do for us over the years. We will see how blockchain technology and Defi is actually beating what banks offer in those areas. And when there is a better technology or competition, the choice to switch comes easy and natural, isn't it?

Banks Vs Defi - on four things

1. Loan:

• Banks: When it comes to lending money to customers, the banks have been doing it for years now. They often have so many lending products for the public to choose from. While it seems easy on paper to borrow money from banks, it is very difficult in practice because of lots of paperwork and requirements.

The first bottleneck to obtaining a bank loan is collateral. The bank operates fully on trust. So for them to give you their money, you have to entrust them with a valuable item that could be used to recover the money should you default. The problem is that they usually expect expensive collaterals. Sometimes, the collateral is several times more valuable than the loan. It makes it hard for many people to qualify for bank loans.

Another problem with bank loans is high interest. Even if you provided an acceptable collateral, high interest rates for the loan is something that makes it difficult to accept such a loan. I once went for a bank loan and it had a 25% interest rate per 6 months. That is so outrageous and I had to ditch the plan.

The above and many other challenges make it a very difficult thing to obtain bank loans.

• Defi: When it comes to lending and borrowing, defi is far more better and easier. Defi loans do not require expensive collaterals. They usually require crypto collaterals that are similar in value to the loan applied for. And there are so many defi platforms offering various crypto collaterals for loans.

Unlike banks loans that require extensive paperwork and identification, defi loans are open to everyone no matter who you are. To apply for a loan, you just need to have a crypto wallet which is still free. Defi loans are thus open to everyone no matter their country, but bank loans are often limited by location.

Defi loans have little interest compared to bank loans. Most defi loans I know have single digit interest rate. In addition, defi loans are automated using a smart contract. So once a user meets up the requirements, they automatically get the loan. Bank loans are processed by staff, so there is a need to have intermediaries who will manually check for the requirements.

So you can see that when it comes to loans, defi does much much better than banks.

2. Cross-border payments:

• Banks: Banks can help you do international payments maybe to make purchases or for other businesses. However, they have so many limitations. The first obvious one is time. To process international payment by the bank would normally require many working hours, sometimes it requires days to complete.

When banks process a payment overseas, they often charge a very high exchange rate which eats enter the money. I once lost almost 20% of money sent by a family member living in another African country. Besides, it too 2 days before i got the money.

Besides the time and processing fee, sometimes banks are not able to process payments to some countries. These make it difficult to complete a piece of business.

The above are challenges that banks face when they process international payments.

• Defi: Cryptocurrencies are the fastest means of sending or receiving money. It takes few seconds to create a crypto wallet and send money in defi. Blockchain payments are usually very first and happen almost instantly. No delays, waiting times or other challenges that prevent sending the money immediately.

Besides the fast processing time, crypto payments require very little processing fees. In fact, some networks are entirely free to send and receive money. Leo is just one of many defi cryptos that could be used to send and receive money instantly and at zero cost no matter the location. So when it comes to cross-border payments, defi rules.

3. Foreign exchange:

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• Banks: When it comes to exchanging one currency for another, the banks do it. I have swapped some US dollar bills for Naira with one of the local banks. But then, its not all smooth sail if you wish to do foreign exchange with the bank.

For one thing, there is a limit to how much you are allowed to exchange. This is their way to control money laundering. Individuals and corporate bodies each have their daily limit and that is how the system is designed. If you wish to swap beyond that limit, the transaction might come under scrutiny. So for foreign exchange, the bank has the final say on how much you can trade. That is a big limitation.

Another big challenge is the exchange rate. The central bank usually set exchange rates. Often, they are high. In country, it is deliberately high because they wish to discourage foreign exchange. So the customer loses a lot of money to the bank as exchange rate. They also have processing fees which they deduct. At the end of the day, you get far less value in exchange than you should.

• Defi: Defi comes with the amazing decentralized exchange platforms. To start with, the user is free to swap any amount of choice without censorship. That is freedom, isn't it? Banks determine how much you can swap, defi lets the user swap any amount.

Defi uses tools like automated market maker to bring up the best exchange rates of all that is in the market. The amounts lost in exchange are usually very small compared to banks. Sometimes, what is lost to exchange rates in defi is negligible.

Apart from the above, decentralized exchanges process transactions instantly. No time in lost at all in completing a token swap. But for banks, lots of paper work would have to be completed. That could take many hours.

So again, defi beats banks when it comes to foreign exchange.

4. Investment:

• Banks: Banks offer many opportunities for investment. One of them is called fixed-deposit. With a fixed-deposit account, the customer locks up some funds over a period of time (usually per annum) and earns interest based on the amount fixed. I have tried this with many banks and the best interest rate i got per annum was 5%. That is ridiculous, isn't it? There was a bank that even offered 3% per annum as their best rate for a fixed deposit instrument. I considered it stealing.

Apart from fixed-deposit products, banks do not offer much investment opportunities. But let me just stop at fixed-deposit which I know very well.

• Defi: When it comes to investment, defi has so many of them. One of the most popular is staking. Just like bank fixed-deposit, a user stakes by locking up some funds and earning interest over a period of time. many defi lending products offer rates much better than 3 or 5%.

Defi staking is also flexible unlike bank fixed-deposits. The customer could decide to walk aways anytime in defi staking, but bank fixed-deposits must run their course no matter what happens.

Apart from staking, users can also participate in liquidity pools. These too offer a lot more ROI than any bank investment scheme will. Defi investment opportunities are so many including automated market makers, prediction markets, community governance and a lot more others.

I can say that defi is much great and rich when it comes to investment opportunities than banks.

Conclusion

So you could see from the above comparisons that defi is much more better than banks when it comes to these and other services.

So what is your verdict? Will you choose banks or defi?

Posted Using LeoFinance Alpha