A Deep Dive Into Traditional Banking

and it's breaking points

The core functions of traditional banks can be grouped into three main areas:

• Custody: Safeguarding users’ funds through deposits and settlement services.

• Credit: Lending depositors’ money to borrowers through credit operations.

• Payments & Clearing: Facilitating the transfer of funds between different accounts and institutions.

These functions are, by nature, intermediary roles, relying on centralized banks and clearing institutions to operate. The above image illustrates how banks and clearing institutions currently collaborate in cross-border payment systems. However, the legacy system was designed as a patchwork of separate banks, each with limited trust and coordination, it inevitably starts facing inefficiencies that shape many of today’s banking challenges.

In the sections ahead, we take a holistic look at how traditional banking works—from its technology stack to its operational workflows— and the challenges they face today to illustrate why legacy rails are no longer capable of supporting the financial systems of the future.