How Are Blockchain Solutions Aiding The Unbanked?

The Problem

Having access to affordable financial services such as transactional and savings accounts, insurance and loans may seem like a given to those of us living in New Zealand. However, for 1.7 billion adults globally this is an unachievable and often unavailable luxury. To illustrate, only 27% of people in Southeast Asia have a bank account.

Financial inclusion is key to boosting prosperity and reducing poverty. Also, it helps simplify everyday life and enable people to save for times of emergency or long-term goals, e.g home or business ownership.

Those who don’t have access to any banking services are known as the “unbanked”. Additionally, many people don’t have sufficient or affordable access to banking services like savings accounts, loans, credit cards, insurance etc, and are referred to as the “underbanked”.

Often, the cause for people being unbanked is that they don't have acceptable identifying information. This makes it hard for traditional banks to follow their Know-Your-Customer (KYC) procedures.

Financial-Inclusion
An editorial cartoon published in The New Times, 14/11/2015.
Women are reluctant to partake in business because of a lack of advanced skills and limited access to financial services.

 

The Blockchain Solutions Aiding the Unbanked

Not surprisingly, the World Bank estimates that 93% of adults in high-income economies have their own mobile phone. In comparison, 79% of adults have a mobile phone in developing economies. These include many Bluetooth, and basic internet-capable mobiles, with smartphones becoming more and more obtainable too.

Therefore, with the increased availability throughout Developing countries, it makes sense to explore how mobile phones can help.

Blockchain and mobile technology provide multiple solutions to the problems faced by the unbanked and underbanked.

“Including the poorest in the financial system increases the value of their assets, transforming the underlying economics of financial services through digital currency - helping those who live in poverty directly” - Bill Gates.

 

Improving Financial Inclusion

The United Nations established a set of 17 goals for ending poverty, protecting the planet, and ensuring prosperity. Of these goals, financial inclusion affects seven of them. This goes to show just how important it is!

Platforms offering blockchain- and/or cryptocurrency-based banking solutions accessible via mobile phones help improve financial inclusion.

As mentioned, a lack of formal identification is one of the biggest barriers for many wanting to open an account with traditional banks.

Blockchain-based biometric identification (e.g. Humaniq using facial and voice recognition) lowers the barriers to opening accounts with traditional banks by allowing KYC practices to be maintained.

Most importantly, these ID solutions need to be low-cost and widely accessible to be viable.

“Financial inclusion is a key enabler to reducing poverty and boosting prosperity”. The World Bank.

 

Improving speed and cost

At present, 260 million unbanked adults from Developing countries send or receive remittances in cash or via over-the-counter services e.g. Western Union. Reportedly, the highest fee for this is around 10-12%.

Even the World Bank’s research shows that by digitizing payments, efficiency and speed of transactions improves and the cost of sending and receiving them decrease.

One company using blockchain to reduce these costs, SureRemit, has fees from 0-2%. Not only do SureRemit send value via their token, they also allow the sending of specific vouchers to ensure the funds are used for their intended purpose.

Another company, Rebit, provides money transfers and bill payments to the Philippines with no processing fees.

 

Providing Employment Opportunities

Whether creating completely new roles or integrating with existing businesses, using blockchain technology still requires some form of a safe and reliable cash deposit and withdrawal system. Customers still need to withdraw cryptocurrencies into their relevant fiat to pay for everyday transactions at markets, small shops, and the like.

Individuals using these blockchain technologies may gain access to transactional, savings, and/or credit and loan accounts. This allows for the creation of new small businesses in developing areas. Which, in turn, will aid in boosting both local and national economies.

 

Decreasing Dishonesty and Corruption

Corruption in governments is definitely not an unheard-of notion. From misappropriation of state funds to rigging of elections, the media is full of reports regarding corrupt politics. As for dishonest individuals in a community, unfortunately, that is also a given.

Blockchain technology assists with these two issues in multiple ways.

Firstly, making payments digital increases security, and as stated by the World Bank, this in itself lowers incidences of associated criminal activity.

As well as this, digitising payments drastically increases transparency. Theoretically, recording transactions in relation to state funding on a public blockchain reduce the likelihood of money not going where intended. Thus, reducing corruption.

On an individual level, blockchain-based biometric identification also reduces dishonesty. As shown in Malawi, biometric ID in the form of fingerprinting increased loan repayment rates by 40% in the highest ex-ante default risk group.

 

Companies Working on Aiding the Unbanked

OmiseGo

OmiseGo aims to encourage financial inclusion with their Ethereum-based network. They are creating an “eWallet” solution operating on the blockchain. Everyone from individuals to businesses can connect to this network with their eWallet to send, receive, buy, or sell fiat currencies for cryptocurrencies. The usual identification barrier is minimised, there are no monthly transactional commitments and low transaction fees. Developed by an Asian company, Omise, this blockchain solution looks set to alleviate some of the economic difficulties in the region.

 

Etherisc

Will make the purchase and sale of parametric insurance more efficient, with lower costs and greater transparency. Etherisc uses smart contracts to remove middlemen and centralisation. This means payouts can be automatically processed if the specified conditions are met. This will be of great use to farmers in Developing countries needing crop insurance. For example, if a crop is insured against drought conditions, a smart contract can be set to automatically pay out the farmer when data collected shows rainfall below the level specified in the contract.

 

M-Pesa

A mobile-based banking solution by leading Kenyan network operator Safaricom that now utilises blockchain technology. M-Pesa (Pesa is Swahili for money) enabled many Kenyans to gain access to digital solutions for banking. Additionally, and with official backing by the World Bank, Safaricom has a new project, M-Akiba (Akiba is Swahili for savings), that gives the public access to government-issued infrastructure bonds. An MIT paper, published in 2016, estimates mobile-based money technology has helped at least 194,000 Kenyans out of poverty!

 

BitPesa

Using this platform, individual users and businesses can send money in and out of seven African countries (so far) with fees as low as 1-3%. One of BitPesa’s other solutions involves helping someone to set up their own compliant and secure remittance business using the company’s infrastructure.

 

Humaniq

Humaniq’s goal is to help eradicate poverty in developing economies by providing financial options for the unbanked. To do so, Humaniq overcomes traditional identification barriers by implementing a system using facial and voice recognition. They use a simple interface for even non-techie users to feel comfortable with.

 

Concluding Thoughts

Clearly, Developing countries face many different problems and this article outlines only one.

Internet accessible mobile phones can only drive financial inclusion if the necessary physical and financial infrastructure is available. While blockchain technology can help to provide the financial infrastructure, in many countries the lack of reliable electricity and internet supply is still an ongoing issue.

Nevertheless, it is exciting to follow the developments in the blockchain technology space and the innovative projects and solutions proposed. There are many companies dedicating themselves to providing solutions for the problems facing our global society. As such, it is always great to see the communities that develop to support these projects.

If you know of any projects using blockchain technology for similar reasons, please let us know about them in the comments below! We’d love to hear your thoughts on this topic.


Disclaimer: The above references an opinion and is for informational purposes only. Do not take this as personalised financial or investment advice. The opinions expressed by the author do not represent the opinion of BitPrime.

Last updated: 05/08/2018

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