What Will Happen When Banks Convert Customers' deposits into Digital tokens?
Banking has come a long way from the traditional brick-and-mortar infrastructure it once relied on. Technological advancements and the growth of the internet have brought us to an era of convenient, on-the-go financial management. With the rise of financial technology and blockchain, the entire financial system faces a major disruption. It is no secret that digital currencies and tokens have been gaining momentum, and now major banks are setting their sights on providing custodial services for cryptocurrencies. This begs the question of what will happen to online shoppers and e-commerce stores when banks convert customers' deposits into digital tokens.
First, there will be minimal impact on online shoppers. Converting deposits into digital tokens will mainly occur behind the scenes, with the customer's banking experience still needing to be changed. Banks have already started to implement the necessary technology and are ironing out the compliance and regulatory requirements to accommodate their new service offerings. As such, online shoppers will most likely continue to shop as they have always done and will hardly even notice the change to digital tokens.
However, online stores will need to adapt to a new payment landscape. Online stores that accept cryptocurrencies will be at an advantage. As more banks start providing custodial services for digital currencies, online stores that accept them will attract a new demographic of customers. With the ease of transactions, increased security, and lower costs, digital tokens are an attractive payment method. As traditional banking institutions start jumping on the cryptocurrency bandwagon, online stores accepting them will be seen as more forward-thinking and modern.
Another change that may occur with the rise of digital tokens is the emergence of new payment gateways. Presently, payment gateways are adjuncts of traditional banks. However, this could change with the evolution of a new financial system. As digital currencies become more widespread, payment gateways that work with cryptocurrencies may become more popular. Payment gateways that focus on providing security and easy access to the global financial system may become the prevalent players in the industry.
With the rise of digital currencies, the benefits of decentralization become apparent. Decentralization means no central authority controls the entire network, and transactions are validated via a consensus algorithm. Consequently, fraud and hacking have become more complex, and data is not prone to significant scale breaches, like Equifax in 2017. By adopting digital tokens, online stores embrace the advantages of decentralization: added security, lower costs, and increased efficiency.
Finally, one potential drawback of converting customer deposits into digital tokens may be the loss of interest rate on deposits. Currently, banks pay depositors interest for the use of their money. If deposits were converted to digital tokens, the interest rate component may be eliminated as banks do not pay interest on current cryptocurrencies. This might encourage people to refrain from depositing funds with traditional banks, adversely affecting their funding.
In conclusion, the transformation of the financial system through digital tokens and blockchain technologies is happening right now, and the banking and e-commerce landscape will inevitably be significantly impacted. Nevertheless, the transition to digital tokens will take time, and banks, payment gateways, and online shoppers/e-commerce stores will all need to learn how to adapt to this new financial world. As more banks begin offering custodial services for cryptocurrencies, online stores must offer their customers as many payment options as possible. Ultimately, the shift from traditional banking to cryptocurrencies will be a win for everyone as it provides a more decentralized and cheaper banking experience.
