From impoverished first-world nationals to isolated citizens in a developing country, access to banking can be difficult. Being unable to access banking infrastructure, or credit, prevents growth and stability -particularly to those on the fringe of society. Without financial literacy, there is no hope of maintaining a lifestyle, seeking financial assistance, managing money or even having the opportunity to spend. As Alexi Lane, CEO and co-founder of Everex, opines, “affordable credit is a key element of entrepreneurship and economic empowerment.”
Michael Fraser, reporting leader at Chartered Accountants Australia and New Zealand, stated that ‘bitcoin can be a paradigm shift for the unbanked…bitcoin’s biggest benefit to the group lies in its capacity as a money transfer and remittance tool.’ This is true of the cryptocurrency sphere that spawned from bitcoin, with the potential to empower the financially excluded finally being realised, as such coins provide a financial infrastructure which is always online and accessible.
Why is Being Unbanked a Problem?
Through large swathes of individuals being unable to bank and cut off from international capital, those individuals and the international community as a whole miss an opportunity to develop, growth and exchange services, goods, knowledge and financial practice. Economic growth is hindered by a lack of access to formal financial services, meaning individuals cannot take advantage of economic opportunities, both domestically and abroad. As such, this can present stagnation in communities that are outside of main trade centres, such as capital cities and urban regions. Further, looking internally, international trade requires access to consumers and without access to viable financial platforms, the unbanked are unreachable in this regard.
Cryptocurrencies, given their traits and uses as a P2P platform, could act as a quasi-replacement for a banking platform, providing the ‘unbanked’ with access to an open source wallet via the internet, enabling such individuals to conduct financial activities. As such, there would be no need for accessible banking, either geographically or otherwise, since the cryptocurrency system removes the need for a central figure, whilst also providing individuals with the power to conduct peer-to-peer transactions. One can also see the similarities with mobile banking in Africa, cryptocurrencies can be seen to ‘step-in’ as the central financial platform in a transaction, just as mobile banking applications have accomplished in recent years.
As established, cryptocurrencies could see individuals in remote regions receiving immense benefits due to the lack of a bank capable of performing such a function in those areas. Not only does this facilitate financial inclusion for individuals that would otherwise experience hardships in accessing a stable banking system, but this also ensures users have more control over their financial situation, understanding exactly where their money is and where it is going.
Moreover, the trust-less system itself ensures credibility and the integrity of the transactions, since the money is cryptographically locked on a public ledger and does not require oversight. As such, small businesses using this platform can reliably access financial processes and this facilitates business growth. Further, transactions are all recorded, providing easily accessible records for accounting purposes of proving income source and company outgoings. Additionally, cryptocurrencies eclipse issues relevant to a stable banking system such as issues of trust and data immutability, rendering these concerns mute.
What’s more, the cryptocurrencies are not limited to a single jurisdiction; many are borderless, such as the well-known bitcoin. Simply put, with no requirement to be able to access a working bank in these remote areas, businesses instead are hooked up to the international grid, thus able to conduct transactions internationally. This offers opportunities for international investment and business.
With greater access to the internet, through projects such as Google’s Project Loon, cryptocurrencies could see remote, unbanked individuals accessing a wider audience and unlocking greater business potential whilst simultaneously removing any barriers. Many small businesses struggle to compete internationally as a result of barriers, such as costs associated with accepting currencies and processing fees, yet, cryptocurrencies, especially bitcoin, essentially eliminate these concerns by operating in a purely digital format and removing the need for long processes in verifying transactions and currency receipt.
Mobiles, Transfers and Coins
Cryptocurrencies also benefit those individuals who send money ‘home’ from a foreign nation; whilst historically entities like the Western Union will have been relied on, the exorbitant fees required for transferring money has made such an approach unappealing in light of cheaper, safer options in cryptocurrency, with the transaction resolution time being relatively quick. With the addition of cryptocurrencies dedicated to solve transactional issues, the market of money transfers may see new entrants.
As an example, Telcoin, designed to work with any mobile wallet app, would allow the easy conversion of the currency into cash or mobile money, allowing individuals greater financial access without the need for a bank. ‘In the developing world, where most telcos provide mobile money which is a good equivalent to cash, we will allow for instant exchange to mobile money,’ states Claude Eguienta, Telcoin Co-founder. Whilst bringing such operations into effect will take time in remote regions, such efforts will be able to capitalise on the adoption of technology in those regions over time, bringing in mature market experience once remote regions become connected.
One such project, Dether, is “a decentralised peer-to-peer ether network that enables anyone on Earth to buy Ether with cash and spend it at physical stores nearby.” The platform seeks to overcome the barriers that prevented Ethereum’s mass adoption: namely, that buying cryptocurrency still retains lengthy processes, despite cryptocurrency valuations shifting in mere minutes, and that Ether cannot be transformed into real-world payments. Further, Dether seeks to rely on mobile technology, not on bank accounts, extending potential adoption to the two billion individuals worldwide that are unbanked.
Dether, essentially, enables anyone who has a smartphone to buy and sell Ether using cash and spend it at physical stores listed on the Dether map, seeking to create a worldwide ecosystem of other buyers and physical stores that are willing to engage in fiat and cryptocurrency exchange.
Potential for Loans
Moreover, as a result of the P2P system, there is the potential for loans to take place. With access to quick transfers of money through P2P systems, this also establishes a system for loans between individuals and companies. Such potential has already been seen with mobile banking. With almost 80% of people in sub-Saharan Africa being excluded from formal finance, and the African Development Bank estimating a credit gap of between $70bn and $90bn for the continent’s medium and small enterprises, there is a large potential for the loan market to take shape in mobile banking. Simply put, such potential could also be extended to cryptocurrencies.
However, unlike mobile banking, which relies on private companies securing data (making them vulnerable to cyber attacks), cryptocurrencies are a lot harder to successful hack due to the make-up of the platforms; both in terms of how the data is secured and distributed, as well as the verifying process. To add, in the mobile banking scenario, the telecom companies can be seen to act as a third party to the transaction, holding data and facilitating transactions on the network, something that is omitted from the P2P process in cryptocurrencies.
Cryptocurrencies are not only limited to banking purposes – they can provide other services and products. The prime example is Ethereum’s Dapps, using the Ethereum ecosystem to power a series of applications for various purposes. Should such a platform be accessible in remote regions, individuals can conduct activities that would not be available through a traditional bank, from education to investment opportunities internationally. This is more important when seen in the light of rigorous processes required for businesses to access loans and other financial services.
As CEO of Cryptopay, a European digital currency provider, George Basiladze stated, ‘banks have very high overheads and processes to adhere to, which make it difficult for startups and SME’s to secure banking partnerships.’ Cryptocurrencies also offer the potential for small start-ups to launch their own ICOs, rather than having to go through a bank. As a result, accessing an international community, with vibrant talent and budding entrepreneurs, using cryptocurrency platforms brings in additional benefits than merely relying on traditional banking. A user online in Africa can communicate with a partner in Crypto-Valley, Switzerland, hitherto impossible with normal banking.
Cryptocurrencies are not the holy grail by any means – while cryptocurrencies themselves are useful, disadvantages still plague the system, most notably the high volatility, lack of regulation and the lack of focus on the specific needs of unbanked communities. However, regions with relatively low-quality financial services, such as sub-Saharan Africa and Latin America, also possess the largest unbanked populations, inhibiting economic progress as opportunities are not exploited, or expanded, to the maximum effectiveness, as unbanked individuals cannot reliably use financial services. Cryptocurrencies can provide some relief to this, providing quasi-banking alternatives.
Certainly, there could be greater adoption of cryptocurrencies by those with access to banking platforms in low-income currencies, as espoused by Garrick Hileman, but the potential for the unbanked to step onto the ladder of financial literacy is ripe for the taking.
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