Could DeFi make banks and credit unions and obsolete?

“My credit union charged me 75 cents for looking at my balance at the ATM,” my mother said in disbelief. Although she rarely withdraws money from ATMs, she thought that no ATM fees were one of the credit union benefits. My mother has always touted the benefits (e.g., higher rates on saving accounts and lower interest rates on car loans) of using her credit union over commercial banks. With the innovation in digital financial platforms that make accessing money simpler, could she be persuaded to use DeFi?

What is DeFi?

DeFi, an acronym for decentralized finance, was created in 2018 by entrepreneurs and Ethereum developers. It gives you responsibility for your money (i.e., deposits, withdrawals, merchant transactions) instead of relying on a credit union or bank. In addition, DeFi, by using blockchain technology, permits peer-to-peer borrowing/lending, currency exchange, and betting. The benefits of using DeFi come with some risks including cyberattacks, software bugs, and network congestion. These risks could lead to unsuccessful transactions and higher transaction fees which would convince more risk adverse consumers, like my mother, to maintain their finances at a credit union or a commercial bank.

Benefits of Credit Unions and Banks

-       Banks and Credit Unions insure your money up to $250,000.

-       Both banks and credit unions offer dividends. Educators Credit Union announced that by the end of 2021 it will have paid 4.9 million to its members.

Credit unions and banks are migrating to digital financial transactions

Credit unions and banks are adapting to change by investing in artificial intelligence and machine learning. Kinecta Credit Union is collaborating with Constellation Digital Partners to create an open banking platform that will allow financial technology firms to offer services to its members. Customers Bank has launched a real-time blockchain payment platform for cryptocurrency and digital assets.

What would make DeFi more appealing to consumers?

 DeFi would be more appealing to consumers if it provided the following:

1.     Services offered through corporate entities within a regulatory structure.  

2.     Cybersecurity insurance to mitigate hacks.

3.     Widely distributed consumer friendly education on its pros and cons.