The World Bank has published statistics revealing that just over 3 billion people (over 18 years-old) alive today do not have access to basic financial services such as being able to have a bank account. They have been deprived of the privileges that come with owning some form of credit/debit card and are therefore ineligible to reap the opportunities that holding one offers. Out of the 3 billion humans who have not been offered basic financial services, 21% are Indian and 12% are Chinese; yet both economies have been growing prosperously and exponentially for a decade now. In the western world, the status quo to storing wealth is to put money into a bank account and let it grow over time with interest. The more wealthy portion of the population tends to also have some well-hedged investments.
We definitely have the resources to bank these people so why do they remain unbanked?
The monetary and non-monetary costs of opening a bank account discourage banks to provide services to everyone. Not only does banking the unbanked require investment into infrastructure but it also costs time to verify paperwork; which can be problematic in lesser developed nations. Banks have very strict KYC formalities and will not hesitate to reject an application that does not comply with the required documentation.
The banks can again be faulted and held culpable for the 3 billion unbanked because of their risk management decisions. Banks are always studying financial opportunities and would have concluded that the risks of offering financial services to those who are unbanked, outweigh the benefits. Therefore, they’d rather leave those who need their services, unbanked and under-serviced.
Upon researching for this blog post, I saw “financial illiteracy” and “low-income levels,” as reasons as to why people remain unbanked. But we believe these are just excuses. You can educate a population to become ‘financially literate,’ and how does one’s wealth affect whether or not they are able to have a bank account; it is supposed to serve as a store of value yet it refuses to do so for the less privileged.
Whether it is on purpose or not, the unbanked have been left in a situation where they are estranged from basic financial services. This includes the inability to build neither a credit history nor a credit rating. Thus, financiers are incredibly hesitant when lending to them, making it almost impossible for the unbanked to secure any sort of credit whatsoever, let alone the dangerously generous overdrafts that we are offered here in the UK.
But most importantly, the greatest barrier the unbanked face is that they are unable to store or transfer money efficiently; two of the three functions of money. If one can neither store money nor transfer it to another person, then does it truly serve as an efficient currency? Despite it being so incredibly hard for the unbanked to secure loans, the extremely fortunate ones are offered loans from intermediaries who act as the middle-man between the banks and the people they refuse to serve, the unbanked. However, the problem with this method is that the intermediaries charge extortionate fees because of the risk they incur by financing the unbanked. Such exploitation is vicious and unnecessary when there are other alternatives, such as the Ripio Credit Network (RCN) which closed its successful ICO on the 5th November 2017.
Now, a new form of currency is made available. A currency that is first, decentralised, meaning no one controls it, which is especially attractive for citizens who have seen their savings vanish because of the state’s decision to print more money and inflate the economy (like Venezuela and Zimbabwe). Second, it can be used as both a means of exchange and a store of value. But most importantly, this currency runs on a network and is therefore available to all 7.6 billion people of earth, as long as they have a computer or a mobile phone, which are becoming increasingly cheaper to buy, with new smartphones selling for the equivalent $10. Blockchain-powered currencies can solve critical issues of the present monetary system. It is a shared network where money is transferred p2p, eliminating the need for a third-party who always makes the transaction more expensive.
When using banks’ services, much time and effort is spent sourcing and organising necessary documentation; there is no such need, with certain e-wallets. Blockchain makes all of the bureaucratic requirements that makes banking so difficult to use obsolete and instead offers easy-to-use services, inviting everyone to join the financial system and community. Phones make transferring digital currency simple, cheap and quick, including international payments as blockchains are global networks. On top of that, the operation and maintenance cost of running a blockchain is also much lower than conventional financial institutions. We have seen that this is true in Kenya with their famous M-Pesa. The M-Pesa was introduced in 2007, and now 2/3 of adults use it, and it caters for 1/4 of the economy’s transactions.
The developed world will be more apprehensive to start including cryptocurrencies as an alternative to money because they already have the luxury of being part of a financial ecosystem. The unbanked, however, will not hesitate to get on board as they are desperate to store money safely, transfer it cheaply, transfer it quickly and receive it with no third-party taking any of it away. Traditional centralised currencies have not performed as they should have in the past decade. When something produces catastrophic results, like in Venezuela where the price of a dozen eggs reached $150 in June 2016 (despite wages remaining roughly the same), you should seek an improved alternative. Cryptocurrencies definitely have the potential to become stable currencies once they receive mass volume, so it’ll be interesting to see how LEDCs choose to approach digital currencies.
Useful Links:
The Unbanked people of Earth: http://uk.businessinsider.com/the-worlds-unbanked-population-in-6-charts-2017-8
$150 eggs in Venezuela: http://www.latimes.com/world/mexico-americas/la-fg-venezuela-inflation-0531-snap-htmlstory.html
M-Pesa in Kenya: https://www.cnbc.com/2013/11/11/cashless-africa-kenyas-smash-success-with-mobile-money.html
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Disclaimer: This article expresses our personal opinions, predictions, and market speculations based on the way we interpret the information we have available to us. It is by no means to be considered expert advice. We take no responsibility/ liability for any actions taken by you based on anything we have mentioned.
We are in no way affiliated with any companies, sites, crypto-currency exchanges and crypto-currencies that we mention in these articles, these are simply the ones we choose to use due to our personal preference.
