Is the traditional financial system obsolete?

Originally Posted On Publish0x

The traditional financial system is the set of institutions, means and markets that facilitate the flow of money between economic agents who have excess savings and those who need financing. These institutions are known as traditional or commercial banks, and offer banking and credit services to their customers. The traditional financial system plays an important role in economic growth by channeling savings into productive investment. However, it also has a number of limitations and challenges that call into question its viability and efficiency.

Among the positive aspects of the traditional financial system are:

📌 It offers a variety of financial products and services to meet customers' needs, such as accounts, deposits, loans, investments, pensions and insurance.

📌 It is regulated and supervised by public bodies that ensure its stability, solvency and transparency.

Among the negative aspects of the traditional financial system are:

📌 It suffers the consequences of negative or very low interest rates, which reduce its profit margins, profitability and stock market valuation.

📌 It faces competition from Fintech companies, which offer more innovative, agile and cheaper solutions to customers, taking advantage of IT.

📌 It has been criticized for its negative impact on wealth distribution, social inclusion and environmental protection, by prioritizing short-term profit over social and environmental responsibility.

📌 It has a bureaucratic, rigid and non-transparent structure, which makes it difficult to adapt to changes and meet customer demands.

One of the main challenges facing the traditional financial system is competition from Fintech companies, which are those that offer financial products and services based on information technologies. These companies take advantage of the internet, mobile devices and artificial intelligence to provide faster, cheaper and more personalized solutions to customers.

Fintechs have emerged as a response to the unsatisfied needs of the traditional financial system, which is characterized by its bureaucracy, high fees, regulatory rigidity and lack of transparency. Some examples of Fintech are electronic payment platforms, virtual currencies, peer-to-peer lending and crowdfunding.

According to a World Bank report, Fintechs have the potential to increase access to financial services, reduce operating costs, improve competition and market efficiency, and foster innovation and financial inclusion. However, they also pose some risks such as cybersecurity, consumer protection, data privacy and financial stability.

Another challenge facing the traditional financial system is the social and environmental transformation that demands greater responsibility and sustainability in the use of resources. The traditional financial system has been criticized for its negative impact on wealth distribution, social inclusion and environmental protection. As a result, more and more people are looking for alternatives that promote a more solidarity-based, inclusive and green economy.

These alternatives are based on principles such as cooperation, participation, transparency and respect for the environment. Examples include credit unions, social currencies, ethical finance and microcredit.

According to a United Nations report, sustainable finance can contribute to achieving the Sustainable Development Goals (SDGs) by mobilizing resources towards key sectors such as renewable energy, sustainable agriculture, education or health. However, they also face some challenges such as the lack of harmonized regulation, the scarcity of reliable and comparable information on the social and environmental impact of investments or resistance to cultural change.

The traditional financial system is obsolete because it has failed to adapt to the technological, social and environmental changes that have occurred in recent decades. Its only alternative for future survival lies in reinventing itself, opening up to innovation and the diversity of options that exist in today's financial market. Only in this way will it be able to continue to fulfill its function of facilitating the flow of money between economic agents and contributing to sustainable development.

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Author's Note: The opinion expressed here is not investment advice, is provided for informational purposes only, and reflects the opinion of the author only. I do not promote, endorse or recommend any particular investment. Investments may not be right for everyone. Every investment in the market and every trade you make involves risk, so you should always do your own research before making any decision. I do not recommend investing money that you cannot afford to chair, as you could lose the entire amount invested.

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"Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth" - Marcus Aurelius.