SO YOU DON’T TRUST BANKS? MAYBE YOU CAN PLACE YOUR TRUST IN TECHNOLOGY INSTEAD

  • Mike Rymanov, CEO, DSX

 

There is no doubt that fintech is bringing great changes to the financial institutions of the world. However, what about the impact that fintech can have on those who aren’t a part of traditional financial systems?

If we look at mobile technology, M-Pesa is easily the darling of the space. With mass uptake and mass mobile ownership on the African continent, M-Pesa, and the ability to pay businesses and people using mobile money has transformed entire economies. Whilst this affects millions of people, according to a World Bank and First Data study conducted in 2017, an estimated 1.7 billion people across the world remain without access to any formal financial accounts. 1.8 billion are also estimated to rely on semi-formal or completely informal systems, instead of banks, for their own financial services. These numbers are worrying.

A lack of access prevents not only full economic growth but also personal wellbeing. This is where blockchain and cryptocurrency could storm in and play a role where traditional banks have thus far failed.

 

Technology
Mike Rymanov

The pedal to the metal

Let’s start by looking at blockchain. Blockchain reduces the time and expenses of financial transactions, can support biometric identification solutions, and can completely get rid of the dependence of single third-party authorities for trust in any system’s validity. Deloitte is right then, in saying that blockchain is an accelerator for financial inclusion – quite literally.

So what about the other great technology that is based on distributed ledger technology? What about cryptocurrency? These digital tokens are often used worldwide for investment purposes – making more money out of initial deposits, so how on earth could they help those who aren’t a part of the formal financial system?

In 2018, an academic, Jan Ohnesorge wrote that “a good replacement for access to a transaction account could be access to a universally accepted and secure cryptocurrency.” He even says that it could enable payments, offer the possibility to save money, and provide a gateway to other and more varied financial services. Crucially, this would not necessarily have to be powered by blockchain to work.

However, all this said, cryptocurrency still has a way to go when it comes to user-friendliness.

 

Increasing uptake

User-friendliness drives better uptake of anything, and can therefore demonstrate the benefits that cryptocurrencies can bring. One important one is a lack of access restrictions. Ohnesorge believes that this will increase the uptake of distributed ledger technologies as, in his mind and for many others, their biggest hindrance currently is ease of use. This also addresses a potential lack of trust in traditional financial systems that is currently hindering the uptake of use in markets that use M-Pesa for example. After all, everyone knows almost instinctively how to use a mobile phone, but not everyone instinctively knows how to use cryptocurrency.

So let’s take our inspiration from the mobile world. Abra, a mobile e-money wallet, enables crypto trading on the blockchain, in an easy and simple way. All that is needed is a smartphone with the app installed – this then enables sending and receiving funds – globally. Users do not need to understand what cryptocurrencies are, or how to use them. They don’t even need to know that the app uses cryptocurrencies. Abra means that anyone with a mobile phone can be connected to the global digital economy. For those in a completely unbanked situation, you don’t even need a bank account. These thin-file citizens can then immediately start building up their financial records file, which can pave the way towards a credit record being created. Not bad, right?

 

Blockchain in the real-world

So what about the real world? Are there examples where this is already working, or is it a pipedream conceived by technologists and blockchain evangelists? Could this actually, and I mean, really help the world’s unbanked? Well, I believe so, and I’m not the only one.

In the Philippines, as many as 70% of residents are unbanked. To overcome this obstacle to financial inclusion, Unionbank partnered with ConsenSys and a number of other banks and tech companies to create an Ethereum-based payment platform for rural banks. Initially designed to support domestic remittances, the programme aims to overcome the challenges of connectivity and lack of technological resources in rural areas. But it doesn’t stop there. Project i2i also wants to build the infrastructure needed to bring rural banks into the pre-existing and internationally connected financial system, along with their customers. There are also numerous other projects that are exploring the use of blockchain to bring about financial inclusion. One such example of a low-cost financial service based on the blockchain is Stellar, which IBM has embraced in order to launch its own Blockchain World Wire, a platform that enables real-time global payments. The Blockchain World Wire currently supports payments in 72 countries.

Blockchain, and the belief in blockchain has undoubtedly been impacted by the hype train. Financial startups touting it as a panacea, and any and every industry thinking of how it can be used to better their services has perhaps diluted the value of the technology to many.

However, applications of this technology in financial inclusion are just getting started, and look to be taking off with gusto. Blockchain holds real potential to bring everyone together on one ledger-driven financial system. It could, even, be the great leveller for all – elevating and levelling up those who haven’t been a part of the formal financial system before.

Blockchain and cryptocurrency technology’s potential goes beyond investing and fully traceable transactions. It can truly become a tech for good, enabling communities to bring themselves up to levels they may never have thought possible. A change in attitude is needed, but with it can come such a beneficial change, that we may remember the dark days of finance before blockchain with shock and horror. You never know, stranger things have happened!

 

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