Web3: What is the new Internet paradigm that will reinvent the role of financial institutions?

This online phase has reframed the way create, share and monetize content, products and services. Embracing the possibilities it brings will allow companies to reinvent themselves and remain relevant

WHAT ARE WE REFERRING TO WHEN WE TALK ABOUT WEB3?

Web3 is the third generation of the Internet and promises to increase user participation by allowing digital creators to own their content online. This new stage of navigation comes with an unprecedented trading system that has blockchain and virtual financial services at its core.

According to Internet scholars, this is a phase that builds on two prior stages: web1 and web2. The first encompasses browsing between 1990 and the early 2000s and is characterized by the rise of blogs, message boards and static web pages. Web2, meanwhile, started around 2005 with the rise of giant social networks such as Facebook, Twitter and YouTube. This is when web1 users began to create and publish their own content.

Web3 — a concept that is still in development — is expected to drive the sharing and monetization of content, products and services in a decentralized manner and without intermediaries. Video games that reward players with cryptographic tokens and collaborative economy platforms are just two examples of this notion.

In the case of commercial operations, the goal would be to dispense with e-commerce platforms for bringing the seller and the end consumer together, while ensuring a commission is still paid. The idea is that the supply side and demand side meet directly.

THE ROLE OF FINANCIAL INSTITUTIONS

Given that anyone will be able to own their assets on the network through the virtual exchange of tokenized assets, banks, fintechs and the financial services industry in general need to create infrastructure and digital tools compatible with blockchain technology to allow these assets to be used, stored, and invested. 

From wallets to payment rails, credit models to investment tools, there are a variety of business opportunities for financial institutions that will help keep them relevant. It is a question of reaffirming their traditional role while at the same time reinventing it to meet the demands of this new phase.

With regard to the safekeeping and exchange of tokenized assets, product development is geared towards virtual means and channels that allow electronic money to be transformed into fiat currency, and vice versa. This is why we are talking about virtual wallets and cards that allow users to pay for their physical and digital purchases with cryptocurrencies or NFTs (non-fungible tokens). 

In a sign of the growing importance of this paradigm, a recent study by the consulting firm Bain & Co. shows that investment in technologies aligned with web3 has grown rapidly since 2021, exceeding US$80 billion globally. More than half that amount (US$ 48 billion) relates to companies in the financial sector that are developing services tied to tokens, blockchain, and smart contracts, which are agreements that are developed using blockchain and, therefore, cannot be altered.

Web3 is expected to represent an evolution of these protocols by allowing creators to sell their content or make it available to the community directly, circumventing the companies that currently earn revenue from centralizing information. This will require a for their physical and digital purchases that is both secure and agile, and it is precisely here where financial institutions play a key role.

Spanish institutions such as BBVA have already deployed some interesting initiatives based on blockchain. Together with the Inter-American Development Bank (IDB) and the Spanish stock exchange, BBVA recently issued the first bond listed on a registered regulated market using blockchain. The platform could serve as the basis for future issues both in Spain and in Latin America and the Caribbean.

In Colombia, on the other hand, the Financial Superintendence is using a controlled testing space (or sandbox) to experiment with ways to use local currency — Colombian pesos safeguarded in accounts of traditional banks such as Bancolombia or Banco de Bogotá — to buy cryptocurrency that is then stored in the digital wallets of crypto platforms.

In short, the definition of the web3 concept is still evolving, just like any new paradigm that is taking root. What is clear is that navigation as we know it will continue to mutate forever.

Web3 is emerging as a revolution that will transform the financial sector and also the way in which customer-facing services are created. For this reason, it is important for institutions to present their vision for the future, to generate value from the opportunities and benefits that come with every revolution.