Globally 2 billion working-age adults don’t have access to financial services. They are considered the unbanked of the world. Most of this population is in the emerging countries. They don’t have direct access to credits, deposit accounts, money transfers or insurance. Financial inclusion could create new opportunities for them. It can help them self-improve their lives.
For the unbanked, lack of capital limits their prospects for overcoming poverty. Traditional banks don’t have the right infrastructure to support them. Blockchain-based solutions can play a major role. These solutions can create new ways of solving infrastructure and cost management problems. The result will be a more profitable way to serve the unbanked population.
Opportunities and Obstacles of the Unbanked
The unbanked is a missed opportunity for the world. One-third of the world’s population isn’t participating in the global economy. The prosperity and wealth of these unbanked population can have positive effects that can go far beyond the emerging markets.
A large portion of the unbanked can be found in Sub-Saharan Africa, the Middle East, East Asia and Pacific regions. These areas lack infrastructure, transportation, and education. Poverty and unemployment often lead to civil unrest and even civil wars. Due to the current state of affairs, it’s often difficult to build traditional banks in these areas, even with the best of intentions. Also, traditional institutions are often unsustainable due to a lower return on investment. Costs of building the bank’s infrastructure are extremely high, while the unbanked people are mostly living on very low incomes. So, the whole business model from a financial perspective does not appear attractive for banks.
On the other hand, the economic growth of developed countries has slowed down. But the growth in the emerging markets is fast and furious. Those markets have room for a lot of expansion. For example, the continent of Africa is making huge strides. Some African countries are seeing 4 to 6 percent GDP growth year-over-year. The explosive growth rate can help these countries create wealth and prosperity in a short period of time. And developed markets can benefit from participating in these economies.
The African middle class is expected to grow from 355 million in 2010 to 1.1 billion in 2060. This powerful demographic will play an important part in shaping the socio-economic landscape of Africa. They will need access to robust financial tools and services. Lacking financial services will severely hamper the potential for progress.
Latest innovations in mobile technology and human ingenuity are helping the emerging countries develop their own solutions. They are making gradual progress towards building banking services infrastructure. Initiatives are often non-traditional.
Fintech companies who are able to use their agility to create new products are capturing the market. M-Pesa, a mobile-based money transfer and micro-financing application, has gained a lot of ground in Africa, where 1.13 billion people have mobile phones. M-Pesa is helping Africa move forward financially. However, the service is available to only 30 million people in 10 countries. So there is still a lot of potential for growth for other financial services. Better solutions can result in faster disruption.
Blockchain: A Potential Solution
Blockchain-based cryptocurrencies provide an easy way for creating a vibrant economy among the unbanked. Cryptocurrencies eliminate the need for building expensive banking infrastructures. More people can participate using their Internet-connected mobile phones. It simplifies the process and makes financial services accessible for a larger part of the population.
- Microfinancing: For banks with traditional infrastructure, microfinancing isn’t lucrative enough. But blockchain-based solutions can decrease the costs significantly and make microfinancing profitable.
- Payments: For emerging countries where there are almost no digital payment methods, blockchains can work as a stopgap measure. It might also lead to a breakthrough in the blockchain technology itself. Companies that implement blockchain payments will be able to improve the technology in real-world situations.
- Identity: Establishing identity is a challenge in emerging markets. Banks and governments have struggled with it. Indian Government’s Aadhaar is centralized identity management program that has caused a lot of issues. The risks of data breaches and manipulation are high in such a system. Decentralized blockchain solutions can provide respite from these problems.
- Money Transfers: Large financial institutions are still struggling with money transfers to the emerging markets. A lot of manual verifications are required. Blockchain smart contracts, verified in decentralised autonomous organisations, cut costs and increase speed of local and international transfers for emerging markets.
- Insurance: People who don’t have bank accounts also don’t have access to insurance. It leaves them especially vulnerable. If there is a financial catastrophe, they are further pushed into the vortex of poverty. Blockchain banks can work as decentralized insurance providers.
Blockchain technology it is not only cryptocurrency banking. Financial inclusion using individual blockchain ledgers can empower the 2 billion unbanked world not just through banking transactions. With new digital identities, micro-scale entrepreneurs become a new economic powerhouse. Their smart phones use blockchain technologies for product cluster communications, P2P verification of credit scoring , financial education, shared best management practices experience and sustainable production traceability.
Considering all the benefits and possibilities of blockchain-based solutions, a lot of companies are trying to disrupt the space. For example, Humaniq’s decentralized blockchain-based platform has the connectivity with other blockchain startups like MicroAid to provide the comprehensive, integrated solutions needed by new micro entrepreneur users. Customers will have access through smartphones to the new cryptocurrency and blockchain technology. Many businesses will get an opportunity to offer their services to an audience of billions.
As financial companies try to harness the power of blockchain, decentralized banking will gain momentum. Cryptocurrencies are just the tip of the iceberg. It’s possible to create a more comprehensive banking experience using cryptocurrencies. It can unlock the power of the emerging markets faster than any traditional solution.
Looking Forward to the Future
Today a large portion of the world’s population is excluded from financial development. They are unable to get loans for their businesses, use digital P2P communications to improve productivity and credit worthiness. Blockchain technology empowers micro-entrepreneurs at the bottom of the pyramid to take their first step on a global economic ladder.
Financial inclusion of the billions of these unbanked people can start a new epoch of world economic growth. It’s going to be beneficial for the whole global economy. Blockchain technology is providing the way to this financial inclusion and empowering a new micro economic revolution.