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  • Writer's pictureRoy Urrico

BankSocial Seeks to Power Proposed Web3-Based DEFY FCU

By Roy Urrico

In the last of a two-part article, John Wingate, CEO/founder of BankSocial, continues his discussion with Finopotamus about the significance of BankSocial, the proposed DEFY Federal Credit Union, Web3, and distributed ledger technology (DLT).

Wingate explained BankSocial is a fintech business, a credit union service organization (CUSO), and the tool that would power his vision for the proposed DEFY Federal Credit Union using DeFi. “We are the first Web3-based credit union, a traditional credit union that is just using new technologies.”

BankSocial consists of a team of credit union and DLT experts who are merging credit unions with decentralized finance, or DeFi, to create a financial ecosystem that it says unites and empowers all people and businesses with fair and equitable access to financial tools. DeFi uses evolving technology to eliminate third parties and centralized institutions from financial transactions.

Refining Its Message

Wingate described the prohibitive price of sustaining aging technologies. “It is all batch. It is just extremely antiquated. And there is a cost to maintaining that when more readily and robust systems are available alongside it.” Wingate explained the BankSocial group kept refining its message. “We finally realized probably a year ago that what we were really building was the evolution of shared branching and the true manifestation of open banking.”

Wingate further explained: “These technologies, the cryptography and the methodologies we are using, are 40, 50 years old.” He added, they can repurpose these technologies in a way to take advantage of distributed computing and the power people hold in their pockets now with mobile devices.

“You have to use these longstanding mechanisms,” Wingate said. “They are tried and true. we really just packaged them and built upon this coming wave, this ideology of Web3 that does hold weight and can be proven mathematically, which is really cool.”

Not Replacing Accounts

Wingate explained when they submitted plans as part of the second phase of DEFY FCU’s charter application, the NCUA asked, “Are checking accounts going away?” He replied: “No, not at all.” He described how modern banking recordkeeping has evolved from paper ledgers and registers to spreadsheets and databases. At the advent of every one of those functions, operational efficiency was gained by making the leap into new technologies, noted Wingate.

Wingate emphasized what BankSocial is proposing does not involve throwing away banking accounts. “It is just saying, ‘We're going to do them in a way that takes that evolutionary step and makes things more efficient, makes them more secure.’”

Wingate advised this combination of Web3 technology and the reduction of intermediaries to provide trust and transparency on these immutable public ledgers might trigger “a fundamental shift in just the way the financial system in general works.”

Driving a New Credit Union Model

Wingate explained how his group set out to create DEFY FCU as a new credit union model that wants to focus on a niche set of members, one that could easily serve specific purposes. “It's so hard for a Chase to care about the little guy who needs a very specific loan or product.”

He provided an example of a hypothetical credit union focused on Uber drivers. “How much better can they get at doing Uber loans for cars than Chase Bank? Probably orders of magnitude. Just imagine how that can manifest out into all these other little things. It has to be a win-win for the member, the consumer, the institution, and for the regulator.”

Wingate described working with the NCUA: “Not only have they been open, they have studied alongside of us and suggested and formulated together with us. Certainly, we have been driving the ideas and bringing kind of these foreign concepts to light. But they are right there with us and they want to explore these things. I am not going to say that they have just given us carte blanche to just go reinvent whatever.”

The NCUA, Wingate noted, embraces the opportunity to explore even opening up regulatory guidance. In May 2022 NCUA Chairman Todd Harper’s letter to federally insured credit unions said the NCUA does not prohibit credit unions from using DLT, which is used to support cryptocurrencies, “if it is deployed for permissible activities and in compliance with all applicable laws and regulations, including applicable state laws or state supervisory authority requirements.”

How BankSocial Works

Wingate said, “The way we do BankSocial we do not charge credit unions. You want to integrate with us? We say, ‘Here, it's free.’ We do everything transactionally, because nowadays the systems and the tools that are available to us can be transactionally focused, and our fees are fair and reasonable.”

He noted that comparatively ACH is costlier than anticipated. “The actual cost of an ACH with fraud, clawbacks (money returned to an employer or benefactor), it is not pennies when you average that across all of your ACH transactions. Your true cost of operation is probably dollars. So that's kind of the way we have approached this.”

The goal, said Wingate, is to build a model in both BankSocial, with the open banking platform, built on this Web3 technology, and with DEFY that is well thought out and adoptable and integrable quickly. “We have to build things that you can easily implement that ride right alongside your core, provide tremendous value, and can be turned on within weeks.”

Another positive is the capability to put in data backup checkpoints. “We can create checkpoints on chain that if a regulator comes in after a year and they look back, you can write a mathematical equation, an algorithm, that compares all the database backups,” Wingate said. He pointed out the backup can say with mathematical certainty somebody touched something on a specific date, even in cases involving fraud.

Noted Wingate, that is the kind of power of these immutable ledgers. “We can create this trustless financial economy that is low cost and is super-fast. That is real-time that you can plug into a core, plug into a credit union right now and start to really push the envelope forward.”

Finalizing the Launch Sequence

The Web3/DLT model is gaining industry attention, Wingate offered. “We're getting credit unions kind of coming in droves and signing up with the (BankSocial) platform and starting to realize the benefits of these self-custody, immutable ledgers.”

He added, “(DEFY) is mostly digital. We will launch with a location that people can come into. I would not go as far as calling it a branch.” He clarified the plan somewhat. “We are really building the next iteration of digital shared branching. It is a manifestation of open banking,” said Wingate. “We've been talking to several credit unions where we think it would be really cool to have this new concept, kind of Apple store-like shared branches,” Wingate continued.

“The biggest thing is the technology that pulls it together. If it is not seamless, if the teller is like, ‘I don't know how to use that credit union's functionality,’ or it’s not settling, it's a worthless endeavor.”

When asked when he anticipates launching DEFY FCU, Wingate responded, “That is a hard question. It is up to the NCUA. Because of so many moving pieces, they are just not able to give us a definitive date and time. Certainly though, we are really close. We are in the final stages.”

Wingate’s described the NCUA application as a three-stage process. The first stage is the field of membership approval. “We've got that. BlockAdvocates (a 501C3 focused on DLT/crypto adoption and education) is our field of membership. Stage two is the most robust of the phases. That is where you essentially pull all the bylaws, the policies, the pro forma, everything about everything. We are at the end of stage two.”

Wingate added, “The next thing that will happen is the NCUA will say, ‘Okay, your application is approved.’” In the third and final stage, the NCUA performs a background check on the credit union officers and the board members. “The last stage is really just a formality. You get everybody to sign the documents, and you are off and running.”

Once DEFY Launches

When DEFY launches it will provide basic financial services in the form of deposit accounts, according to Wingate. “We wanted to get it off the ground with the absolute simplest (accounts). That does not mean that we cannot get creative and do loan participation and connect with CUSOs and create this new model for shared services and shared branching,” he said.

Wingate pointed out DEFY’s system will integrate with the CUSO Prodigy’s core technology, but explained, “The initial rollout is not going to be 100% with Prodigy. Prodigy has integrations for certain components of our software platform. We are actually working with Prodigy right now to completely revitalize and revamp their core.”


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