How to Overcome Poverty by Helping the Unbanked?

Banking is something that many of us take for granted, whether that’s because of our easy-to-use credit cards, our secure and federally insured bank accounts, or it could even be due to the direct deposit into our accounts on a biweekly schedule from our employers. For many, though, the convenience and security of established banking is out of reach, and whether or not they resort to using expensive (and sometimes illegal and dangerous) alternatives like check-cashing offices, hiding their money in a coffee can in the backyard, or by some other means, the problem of poverty and income disparity will remain. Have you ever considered how difficult life is without access to a bank? Even those with filtered options — options that aren’t restricted by any external force but are limited in the scope of their usefulness — can be found in many first world countries. Filtered options like check-cashing centers, prepaid debit cards provided by an employer instead of a check, or relying on pawn shops for “credit” since they have no credit card options. Until we offer fair, affordable, and unfiltered banking options to the masses we will never reach greater financial equality in terms of banking access across the globe.

Unbanked and Underbanked

Often lost through the cracks, people who are unbanked or underbanked account for approximately 39% of the world’s population — nearly 2.9 billion individuals. Unbanked and underbanked individuals can be defined as those who do not have access to a financial institution for banking, or those who do not have access to a wide enough range of options available to them to create a fair banking market. From here on out, we will refer to these two terms collectively under the term “underbanked” for the purpose of simplicity.

The underbanked primarily exist in countries that have lower than average GDPs, but even in established countries like the United States, around 27% of the population suffer from a lack of adequate financial institutions. There are obvious reasons for underbanking, such as a lack of physical bank branches due to security concerns or lack of market, for instance. But some of the less obvious reasons may include a cornered market by paycheck cashing services, restrictive gang/rogue military activity, and a high-fee barrier of entry. Blockchain technology provides unique solutions to many of these problems, but the solutions are entirely limited by global Internet usage penetration, which sits at around 55% worldwide.

With global Internet usage increasing every year and mobile phone access leading the way, there is a huge potential market of those who are currently underbanked but now online. Unfortunately, blockchain technology can only help those who have access to the Internet, but this creates a beautiful side effect — if you provide a way for for-profit companies to make money by increasing Internet availability in developing countries, you can inject more money and resources to grow infrastructure in places that might have otherwise remained stagnant. For those underbanked who are already online (which in Southeast Asia accounts for 73% of the 600 million person population), there is no logical reason for the lack of financial services. Luckily, there are fintech and blockchain solutions being integrated to help alleviate these issues — by providing greater accountability in regions where no local jurisdictions guarantee funds, and by supporting existing institutions and helping them grow so they can accommodate more customers.

Decentralized Banking for the Underbanked

You are probably familiar with the idea of decentralization at this point, but if you have any questions about it you can find the answers you seek in this article we wrote about the topic. When it comes to decentralized banking, the key concepts to understand are lower costs and greater incentives for companies to enter markets that they typically would have avoided. Decentralization offers security on both ends of the transaction in these cases, so even if there isn’t an organization like the FDIC to insure customers’ money, the customer can rest easy knowing that their funds are recorded on a blockchain.

Decentralization, as we mentioned earlier, has a huge potential to decrease the overall costs of a technology or service. For the underbanked this can lead to cheaper money transfers and far lower account fees without sacrificing the necessary security and transparency that everyone looks for in a financial institution. In the specific case of serving the underbanked and respective financial operations, the use of hyperledger fabric will accelerate transaction times, increase security, and allow for various companies to join existing networks upon approval.

Open banking is the last main part of this perfect storm scenario that is swelling around the underbanked populations of the world. Open banking is the idea of allowing third-party developers to build applications and services around a financial institution that uses open APIs. The purpose of this is to increase financial transparency for account holders through open and private data, and all open banking protocols must be written using open source technology so that they are easily verifiable. Open banking essentially allows for new players to enter the field and begin assisting the underbanked in ways that have never before been allowed, and blockchain technology is poised as a key component in the entire process. There are a few specific companies that are emerging in this field that we want to highlight in order to better explain the entire process.

Projects Bringing It All Together

Ideas are great, but ideas alone do not solve problems. Only by putting those ideas into action and creating something from them will we ever see progress, and in the case of serving the underbanked there are a few companies that are taking those ideas and running with them. We will examine these individual companies solving specific problems, as well as a company, TraXion.Tech, that is planning to build a network of services to fully immerse the underbanked in a world of financial access and stability.

Specialized Companies

There are a variety of companies that are providing individual solutions to many of the problems that blockchain technology could possibly alleviate. They exist in a plethora of fields, typically operate using their own token to fuel their individual marketplace, and they are uniquely specialized to solving one problem. Specialized companies oftentimes thrive because they only have one market to focus on, can target their ideal audience with a laserlike focus, and pour all of their funds and research into making their specific clientele happy.

• Alice.si is a blockchain based fundraising company that aims to decrease necessary trust in corporations and increase the transparency in the crowdfunding process. They hope to allow for more worldwide based crowdfunding that crosses borders without high fees and transaction times, as well as give their fundraising customers the opportunity to vet donors and prove exactly where the funding is coming from.
• Yocoin.org is an oracle-powered blockchain insurance company that uses smart contracts to accept and payout settlements using its specific token (YOC). YoCoin could help insure people all over the world, and because the middleman of insurance claims is the community instead of a company, payouts are more likely to be fair and less driven by greed.
• FiiiPay is an immersive payment solution that encompasses everything from wallet to merchant POS, exchange database, and investing. Fiii wants to be a destination for customers who wish to do anything concerning purchases/money sending, and wants to eventually branch into mainstream cryptocurrency conversion.

Specialized companies are designed to be great at the individual goal they are attempting to accomplish, but because of this specialization it is easy for them to fail if their specific market dries up, flounders, or a competitor moves in with a better product. One way to alleviate this, albeit not perfect, is to bundle similar services under an umbrella company to help ensure stability.

One-stop Shop

TraXion is focused on building an infrastructure for everyday users to access banking services and much more. They are basing their operations on a blockchain-driven environment to help change the way people do business, including mandatory data integrity, accountability, transparency, and trustless trust. The entire purpose of TraXion is to provide a blockchain-ready platform for businesses to utilize (i.e. open banking) that is scalable, immutable, permissioned (thanks to the hyperledger fabric), and capable of executing smart contracts in a visible, open source manner.

Working with a variety of other large fintech companies, TraXion aims to make itself irreplaceable to the underbanked around the world, and eventually provide features to open up the possibility of blockchain technology to many other avenues. Some of the key components that will be integrated with the TraXion platform include:

• GavaGives.com — n end-to-end fundraising platform that empowers nonprofit organizations and helps them to increase and manage their donors and donations, both on and off the blockchain with many currency options and analytics made available.
• TraXionPay.com — A growing payment integrator in the Philippines that enables more payment options for non-credit card holders (the underbanked).
• BayaniHealth — A human resource benefit-oriented service platform that offers affordable, sliding scale-based flexible healthcare packages for small and medium enterprises, solo entrepreneurs, freelancers, and everyday people.
• Parachure — A digital advising platform that is comprised of industry experts and advisors who provide goal-based financial advice and information to enable its community to reach a financially secure, future-sure life.
• Azzurance — A SaaS-based insurance platform that provides coverage for automotive, non-life, fire, property, and travel. In conjunction with insurance offerings, it provides IoT solutions for other insurance companies and helps to automate the insurance operations to reduce costs and increase efficiency.

This can all be a lot to take in and understand, but the basics that you need to understand is that TraXion will provide an API-fueled blockchain of which third parties can build banking, healthcare, and other solutions that will be available globally, and with low barriers of entry in order to enable larger swaths of the world’s population to access them.

What is the Best Route to Take?

There is no right answer to this question, unfortunately. Specialized companies have their place in the world just as much as combined-service companies do, and oftentimes companies that try to do too much can fail because they aren’t able to focus on any specific part of their operations. TraXion, it seems in this case, is riding the fine line between taking complete responsibility for all the various services and providing a means through which other companies can operate under the TraXion brand (white label operations). Only time will tell the outcome, but for the underbanked of the world, a company like TraXion could provide many of the services that they desperately need.

More than Monetary Profits

Blockchain technology is often touted as a key to solving most of the world’s problems, but in reality, the implications of such technology is limited to the viable usage of individual citizens around the world. Only citizens who have access to the Internet can use these new technologies, and although pouring more money into blockchain and financial technology could eventually lead to greater Internet coverage worldwide, we should instead focus on helping the underbanked individuals that we can currently access through the web. In regards to helping those who exist in regions that offer no local government or private banking options, an outside (blockchain-based) company could be the most viable solution because it offers both security of funds and low-cost operation. The world is certainly moving away from brick and mortar banking operations, away from cash, and away from physical currency in general. In the flowering digital era of currency exchange, what better way to guarantee funds than an immutable worldwide blockchain?

About the author:

Kirill Shilov — Founder of Geekforge.io and Howtotoken.com. Interviewing the top 10,000 worldwide experts who reveal the biggest issues on the way to technological singularity. Join my #10kqachallenge: GeekForge Formula.