Cryptocurrency Will Bank the Unbanked

This will be blockchain technology’s greatest use case.

As of today, 2.5 billion adults (and thus roughly 5 billion people with their children) are part of households that do not have access to banks and banking services. Even 12% of US adults don’t have bank accounts- and an additional 15% have to rely on check cashers or payday lenders for liquidity and credit. At first, that may not seem important- but a lot of us here in the developed world take for granted our financial services and what they do for us. We have credit cards so we don’t have to worry about carrying cash- vendors eat the cost of fees charged by Visa and MasterCard. But this doesn’t exist for so many people who don’t have banks. The main reason for this institutional void is that these people live in regions that banks do not want to go since they would be unable to make a profit. If you are born and grow up in one of these regions, you cannot have a checking account. You cannot have a savings account. You can’t get small loans or own a credit card. Banks won’t go to areas where there isn’t a positive return on investment for them- they won’t venture into the middle of nowhere; it would be tough to open a physical bank branch in a place being torn apart by bloody civil war. Huge swaths of people don’t have IDs, birth certificates, or any form of collateral distinguishing them as a unique person who exists. For these and other reasons, a surprising number of people across the world are unbanked. For example:

In Argentina, only 33% of the population is banked

In India, only 35% of the population is banked

In Pakistan, only 10% of the population is banked

In the Philippines, only 27% of the population is banked

Plenty of these people have access to ‘shadow banking’ features, like loan sharks and money transmitters that have exorbitant costs. At the same time, roughly 5.5 billion people (66% of the world’s population) have access to the internet (and this figure climbs every year). In impoverished nations people can still get access to cheap cell phones ($5)- cell networks and mobile phones have made a remarkable market penetration into even the very poorest of the world’s places. Even smartphones are being sold at prices as little as $20 in developing countries.  This is why we see entities like IOHK striking deals with African states to get adoption of Cardano- because demand for the service is there. 

I’ll give an example of how lack of access to banking and financing can make life more difficult. Many people in Mali for instance, relocate to Nigeria, Ghana, or the Ivory Coast to find work- but their families are still live in Mali. These Mali expats use different measures we would think are wild to get money back to their families-  they send money back with random people on the road by asking them if they would deliver it to their families in their hometowns- they buy and ship goods they think will retain their value that they hope their family can then resell for the cash. Sometimes these moves work and the money arrives- other times it doesn’t. People take time away from work just so they can go back home and deliver money in person. 

Let’s move up the ladder and think about a Phillipino immigrant living in the US wishing to send her money back to her family in Manila. She would most likely use a remittance service from an actor like Western Union. The global remittance business is worth over $500 billion/year alone. That’s half a trillion dollars every year being collected by middlemen from often impoverished families sending money to each other. Certainly, remittance actors like Western Union provide a service, but is that service really worth half a trillion dollars a year? Fees/exchange rates “friction” in these remittance transactions typically run from 10% to 30%. Jesus. H. Christ.

That can be changed. Bitcoin doesn’t give a s*** who you are. It doesn’t care how much money you are willing to spend, send to your family, or save. Your credit history and identity are irrelevant. Cryptocurrencies need no central entity to ‘live’ on like a central bank server or cloud technology. All Bitcoin, Ethereum, and other currencies are essentially just a few lines of code. People don’t even need a smartphone to have the capability to use crypto- it’s that light. We’re talking the amount of memory and processing power needed to send and receive text messages. All telecommunications and hardware infrastructure to make this happen is essentially already in place. All of these features that cryptocurrencies have hold immense intrinsic value that the market generally has not yet recognized. 

  Due to globalization, the unbanked are also much less poor than they used to be- less than 9% of the world lives below the $1.90/day poverty line, compared to 36% in 1990. Bringing global financial integration to all people could kick the trend of globalization into overdrive. A popular argument against bringing cryptocurrency to these underdeveloped regions is that the people won’t be proficient enough be it with literacy or technology to be able to transact. The opposite is true- because these people have already had exposure to mobile technology, and have already had to deal with shoddy financial arrangements and the difficulty that comes with it, they will welcome the speed and simplicity of having a digital wallet and using it to send, receive, and transact. 

There could still be regulatory setbacks. Blockchain technology is still in its infancy and is subject to market manipulation. Crony interests, corruption, and lobbying could lead to officials in these nations to create licensing obstacles for digital exchanges. These same forces of government intervention could also work toward blockchain technology’s advantage- for instance,with the president of El Salvador pushing the national Bitcoin mandate in June 2021. All McDonald’s, Starbucks, and Walmart locations in El Salvador will now have to be able to accept and transact in bitcoin. 

I’m extremely lucky- I was born a white male in America to a middle class family. If I think about the many things that have helped me get ahead in life, a lot of it has to do with access to banking and financing. I got my first debit card at 17- I financed both my undergraduate and graduate degrees with loans. Someday, I’ll buy a house that’s much more than I can afford to pay in cash because I live in a nation with advanced banking practices. That house will appreciate in value and then I’ll sell it. I’ve been able to invest in the American stock market and become wealthier and work for companies that have themselves become successful via financing from banks. 

Imagine peer-to-peer smart contract lending on a decentralized network to the people who need it the most in the world. Leverage helps grease the wheels of progress and innovation. Adoption will take time- think years and decades from now. But it will be technologies like blockchain that will bring financial services to those who need it the most. Cryptocurrency/blockchain technology will be a decisive factor in advancing development in poor countries in the 21st century- a true game changer. We are early. But the transformation will happen.

Sources: Paul Vigna & Michael J. Casey, The Age of Cryptocurrency 2015

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