It’s time for incumbents to invest in web3

Mauricio Magaldi Global Strategy Director, Crypto

1st November 2022 • 4min read

Despite the global economic climate, a lot of banks and fintechs have dipped their toes into the crypto waters in recent months.

These companies are braving experimentation and onboarding people and businesses into web3.

Revolut added a crypto spending feature, Nubank now offers Bitcoin (BTC) and Ether (ETH) to over 1m users, and there’s a big push to simplify the UX in the payments space. Plaid is facilitating the connection between web3 wallets and fintech wallets, Mastercard is offering crypto trading to banks and Stripe is using Stablecoins to make payouts reach over 4.4bn people.

There are plenty more examples, and none of this is by chance. In a world of high inflation and recession, proper - affordable and intelligent - financial services is the difference between going broke and staying afloat. And the answer to creating proper financial services is decentralised infrastructure.

In a world of high inflation and recession, proper - affordable and intelligent - financial services is the difference between going broke and staying afloat.

The more efficiently these services are offered, the more affordable they are. This includes the ability to use natively digital, programmable rails with instant clearing and settlement, which run on finality, 24 hours a day, 7 days a week, every day of the year, and are virtually borderless.

That sounds a lot like crypto…

By adopting crypto as an infrastructure, TradFi and fintech players can move beyond efficiency. They can stave off the competition, sharing some of that efficiency back with clients, and creating forms of incentivisation that current economics don’t allow, like cashback, rewards or simply lower fees.

Web3 primitives like composability and programmability allow users to build on top of existing tokens and openly programme behaviours. In this way, customers can be attracted, retained and rewarded anywhere in the world. These primitives solve customer problems in ways that are impossible with traditional tech.

That means that innovation can be sped up, with more experimentation and learning, and you don’t need to change your whole product portfolio to start. Choose a specific area of interest and be deliberate in solving that problem using these new primitives, ask customers questions, and help to onboard them into web3 by being useful.

When it comes to taking banking UX to a whole new level, fintechs have changed the game. Now imagine what they could achieve with decentralised infrastructure. They wouldn’t even need to go hunting for clients like crypto-natives have to do.

You don’t need to start from scratch

If you’re not a web3 or crypto-native, you don’t need to do everything you believe is possible in this space. You can look to partner for speed (quickly get your new offering to market) and then (when you really dominate that capability) build for moat. If you’re a company or bank, Cross River can be your Crypto as a Service provider and J.P. Morgan will help you to tokenise traditional assets for improved liquidity.

In this new business dynamic, there are new forms of partnerships that are enabled by tokens, such as the merger between DeFi platforms Rari and FEI. This indicates a new realm of possibilities in how two or more companies can commit to interacting, so your M&A function will need to adapt to that.

Beyond text documents, spreadsheets and slides, due diligence and dealing with procurement negotiations for suppliers, and the data room for a particular equity or debt acquisition, companies will need to understand tokens and tokenomics, multisig wallets and DAO governance voting.

Some crypto-native partners will have governance tokens that resemble stocks or equity, some will have utility tokens that let the partners consume their services and some will be required to be paid in cryptocurrency.

The new dynamic creates new opportunities like acquiring an emerging platform or spinning off a business unit. It will all depend on individual strategies and partnership frameworks.

My unfiltered opinion

For incumbent companies that have not yet dabbled in web3, the bear market is a massive opportunity to experiment on the cheap. It’s a matter of finding the sweet spot that speaks to your business model and value proposition and assembling the capabilities that will allow you to build for the next bull market. Look at Revolut and Nubank. The former has signalled the launch of their own loyalty token and introduced a learn-to-earn feature with Polkadot that attracted 1.5m users in the first month, while Nubank recently announced their own token in support of their loyalty programme.

For incumbent companies that have not yet dabbled in web3, the bear market is a massive opportunity to experiment on the cheap.

Failing to act now will increase the gap between first movers and everyone else. In the end, it’ll prevent users and corporations from having access to a thriving, competitive market that is constantly evolving - to one-up the incumbents and provide increasingly smarter solutions to everyday users. Degens or normies.