In the early 2010s, bank customers dissatisfied with fees, complexity and poor service at traditional banks were given new options.
Neobanks, also known as digital or challenger banks, emerged as fintech startups aimed at providing banking services primarily through mobile apps and web platforms, without the need to open physical branches.
Fintech companies like Simple in the US, N26 in Germany, and Monzo and Revolut in the UK have focused on providing an intuitive user experience, often including features like real-time spending notifications, budgeting tools, and easy money transfers.
However, as with traditional banks, the account remains at the centre of the closed service cycle.
Read more in the Opinion section: Fintech has hit a wall. Blockchain will break through it.
A new crypto consortium is pitching Open Finance (OpenFi) as an alternative to both neobanks and strictly crypto DeFi.
The key concept is to start with a user-controlled account. Instead of banks being gatekeepers ensuring KYC, banking services can be plugged in — and turned off — like the “money Lego” metaphor we’ve become so accustomed to in Web3.
In short, OpenFi is a platform for integrating non-custodial blockchain solutions into the traditional financial system.
OpenFi Vision
A group formed on the sidelines of the EthCC in Brussels envisions a future in which bank accounts are replaced by smart wallets, allowing users to manage their finances independently of any centralized organization.
Instead, like an a la carte menu, specialist providers take on the job of providing banking services, an approach that removes single points of failure and puts users in control.
A key component of OpenFi’s strategy is developing infrastructure to support applications. As Jasper De Maer, head of research at Outlier Ventures, points out, “Applications inspire infrastructure [and] The infrastructure enables new applications to be built.” In short, it’s time for fintechs to move to a new tech stack, he said.
Unlike the built-in wallets offered by centralized players (sometimes referred to as CeDeFi), OpenFi proponents advocate the use of smart wallets—Safe and Zeal, which is based on Safe, are two of the original members of the group.
Smart accounts provide direct access to DeFi applications, allowing users to define their own security settings while outsourcing payment and banking functions to providers like Monerium and Gnosis Pay.
Read more: Gnosis uRamp Joins On-Chain Banking Product Line
For OpenFi to reach its full potential, a concerted effort is needed to develop more user-friendly applications that can compete with those offered by traditional fintech companies, as well as further advances in identity and security solutions.
On the identity front, Julian Leitloff of idOS pointed to the need to streamline the onboarding process and avoid redundant KYC processes. Today, most users need to verify their identity multiple times to access various financial services. OpenFi, which Leitloff called “the killer use case for crypto,” offers a unified identity solution that simplifies this process.
The idOS system uses the Arbitrum Orbit chain, but is chain-agnostic and provides user-encrypted data to dapps via an SDK.
Institutions are still needed
Despite OpenFi’s promise, traditional financial institutions will continue to play an important role, says Julian Griego of Safe. Merchants and service providers are not yet ready to accept direct crypto payments, so hybrid solutions like Stripe, Gnosis Pay, and Kulipa are needed to bridge the gap while remaining compliant.
But by separating accounts from banking services, the OpenFi group hopes to deliver on the promise of an open, user-centric financial ecosystem with more choice and more opportunities to earn income on the blockchain—something neobanks have failed to deliver.
