For several years, crypto enthusiasts have put forth cryptocurrency as being the great financial leveler for the unbanked and underbanked in terms of financial inclusion. The fact that there are unbanked and underbanked populations in the world – mostly low-income people, especially low-income women – is without debate. But how far can crypto go toward bridging the financial inclusion gap, and what are some challenges facing the movement? For those who are not on the crypto bus, yet, is non-crypto fintech the happy medium?
Although it’s hard to say how far crypto can go toward bridging the financial inclusion gap, it’s easier to say there should theoretically be no limits. While crypto can’t change the underlying issues about why people are unbanked – such as the lack of income to begin with – it can make financial transactions much easier assuming the technology is available and understood. In order to understand how this can be, imagine you live in a part of the world where the government and related monetary system is unstable for whatever reason. Many vendors and suppliers of services do not have a bank account because of that government or monetary instability. Or perhaps they don’t have a bank account because of some past transgression that prevents them from being banked, or because they don’t have an understanding of the banking system or traditional transactions (financial literacy), can’t keep minimum balances, or even pay account fees. In some parts of the developing world, vendors and suppliers of services do not have a bank account because there are no banks within a reasonable distance. The above can be true for individuals, too, so there are many reasons for being unbanked or underbanked. Barter is often the simplest and safest way to transact business.
Addressing the reasons for being unbanked:
How can cryptocurrency address these problems?
These characteristics of cryptocurrency make it a desirable alternative to a traditional banking system:
- Most cryptocurrency is not tied to any government or monetary policy. Most crypto is unaffected by political or monetary instability.
- For better or for worse, cryptocurrency exchangers are indifferent to one’s financial transgressions.
- There are no minimum balances on a cryptocurrency wallet.
- Funds transfer fees are generally lower than with the traditional banking system and fiat currency.
- With smart contracts, traditional banking services such as payments and loans can take place with no financial intermediary involved. Crypto lacks the traditional forms and processes of a financial intermediary that are intimidating and difficult for many to navigate.
The argument for crypto is that open commerce would improve, because people who have something… anything… to sell, would have an easier time selling it. These sellers would have the ability to accept payments that they do not in a traditional system. It’s a strong argument. Crypto not only improves the gap in financial inclusion, but it can help lift peoples’ economic standing.
The only two caveats that come to mind when contemplating crypto’s role in bridging the financial inclusion gap are: 1) The availability and understandability of crypto technology; and 2) In the rare situation where something does go wrong, such as a theft of cryptocurrency or a forgotten key, there isn’t always a central authority to complain to. (In fairness, there are some models with crypto custodians.)
Regarding the availability or understandability of crypto technology, in many parts of the world, women do not have the same access to technology as men do, and those who are seriously impoverished might not, either. Thus, the crypto tide might not be raising all boats equally (or at all). There are options for making funds transfers with just a phone number or email address, but again, there are still populations that do not have these. Can non-crypto Fintech help? Is non-crypto Fintech the happy medium? Potentially.
Is fintech a solution?
Before cryptocurrency became mainstream, Fintech was touted as being the great leveler. Fintech solutions still relied upon the traditional banking system and money movement rails to bring products and services to consumers, but with ease of use, lower fees (usually), and better engagement. It has been a tremendous success, but for the most part it rides upon the banking system, and with that there are pros and cons. If money is stolen, there is an entity to complain to and an authority that should help recover the money. But many of the issues with traditional banking follow Fintech – not just banking laws and regulations, but rules such as automated clearing house rules as well. And there are still fees. Whether those fees are truly lower or just different can be debated. For example, one can have their paycheck direct deposited to a traditional bank checking account for free, but if it gets direct deposited to some prepaid cards, there is a fee. But for a fintech deposit account, fees usually are lower than they are with a traditional bank account, and the technology helps consumers and businesses manage their money better. In developing countries, it remains important that the technology be available to even the lowest income people and women, otherwise, disparities are perpetuated.
With all things considered, we should see the gap in financial inclusion shrink for those reached by crypto technology and Fintech combined and this is a good thing in terms of socio-economic development.