Co-founder at Raven Protocol • Investor at Deep Ventures • Author at Forbes • Editor at GoodAudience
For much of the world’s population, banking has been a regular part of life for a long time. For many people, just about everyone they know has a bank account at a major financial institution in their country.
So people who have always had access to financial services would be surprised to learn how many people around the world are part of the unbanked population or people without an account at a major financial institution or through a mobile money provider.
The Global Findex Database and access to financial services in developing countries
According to the World Bank’s most recent Global Findex data on the subject, In 2017, about 1.7 billion adults remained unbanked. In 2014 the data indicated 2 billion adults were unbanked. The Global Findex database has been published every three years starting in 2011.
A study by Oxford Economics and Fintech company Juvo found that establishing financial identities for the world’s unbanked population would add $250 billion to the Global GDP.
According to the study, this would be the equivalent of increasing GDP per capita in low-income countries by 6%. So, in addition to providing a benefit to the unbanked citizens of the world, Globally we would benefit as well due to the strengthening of the Global GDP.
Financial inclusion is considered an enabler of other development goals in the 2030 UN Sustainable Development Goals. It is listed as a target in 8 of the 17 goals, including SDG1 on the eradication of poverty.
In this sense, financial inclusion, or access to financial services, is considered by the UN and its member countries to have a direct correlation with poverty reduction.
Financial inclusion in developed countries
Lack of access to financial services is generally thought of as an issue that primarily impacts developing countries, and it is true that developing countries represent the majority of the total number of unbanked individuals. However, what many people do not realize is that a lot of people in developed countries remain unbanked as well.
Financial inclusion has become an issue in the U.S. where in 2017, the same year that the Global Findex data cited above was published, the FDIC reported that 6.5% of U.S. households were unbanked. Another 18.7% were underbanked.
These numbers are high when compared to Europe, where the financial inclusion rate is above 97%, and Canada where the financial inclusion rate is 99.7%.
The extremely high inclusion rates in countries like Canada help to increase the perception that providing access to financial services is not an issue in developed countries when it still remains a problem in some developed countries like the U.S.
Financial exclusion: A global issue
The data indicates that there are unbanked citizens in many countries around the world, and providing increased access to financial services needs to be a top priority in both developing and developed countries. People are being excluded from the financial system all over the world, and not only in low-income countries. The question remains,
How can well over a billion people from all over the world gain access to financial services?
The answer to this question and a viable solution to the problem of financial exclusion already exists.
Blockchain Technology and Decentralized Finance (DeFi)
One of the issues with providing a financial infrastructure for the unbanked is that it is very risky for banks. It would be expensive for them to do this and there would be no guarantee that there would be a return on their investment. This means that the most obvious solution is not really an option. However, blockchain technology could take its place.
Blockchain technology provides safety while making or receiving payments, the costs to operate the technology are low, and anyone with a cell phone or laptop with the power to access wallets can quickly gain access to it. Furthermore, there are many wallets available that are effective on a wide variety of blockchains, so the unbanked could easily store their digital currency from anywhere in the world.
If you are wondering what people would do about getting access to the other financial services typically offered by banks such as savings, loans, interest, and insurance, there is an answer to that too. Decentralized Finance (DeFi) projects within the blockchain and cryptocurrency industry are aiming to offer any type of financial service typically provided by banks on the blockchain. Essentially the point of Decentralized Finance is to offer a decentralized version of every financial service currently available at centralized banks.
With access to all of the same services as a bank at an extremely low cost through blockchain technology and decentralized finance, the unbanked could become banked with just a cell phone and internet. It sounds great, but how can we expect to solve this problem for the entire unbanked population if cryptocurrencies and blockchain technology have still not become widely used. There aren’t anywhere near one billion people trading cryptocurrencies on the blockchain, so getting every unbanked person to adopt decentralized finance seems impossible, considering that there are way more than one billion of them. The mass adoption of cryptocurrencies and blockchain technology has yet to transpire, but much of the resistance to this technology exists simply because much of the general public doesn’t understand it. This is due to the fact that they don’t view it as something that is easy to start.
Yes, many crypto exchanges and wallets are not very user friendly, and there are often too many steps required to get started with buying, selling, trading, lending, investing, or earning interest. However, there are some blockchain projects that are providing a more user-friendly experience for users. Here are a few projects to consider.
CryptoLocally: A DeFi product and p2p exchange to bring DeFi and blockchain to the masses
CryptoLocally is a cryptocurrency trading platform that enables p2p trades in just a few simple steps. There is no KYC required, so once you have registered you can start trading immediately. You can buy and sell cryptocurrencies on CryptoLocally in just five simple steps, and if you can’t find the trade you are looking for you can create your own offer.
CryptoLocally is non-custodial. Buyers and sellers are protected when trading via an escrow which uses smart contracts to ensure that the transaction runs smoothly and nobody, including CryptoLocally, has access to your cryptocurrency. With CryptoLocally’s DeFi product, the first DeFi product on any p2p exchange, users from all over the globe can earn interest simply by setting a password and toggling the earn interest button.
The problem regarding DeFi is that it is too hard to access. For that reason, CryptoLocally’s DeFi product is designed to provide easy access to everyone, regardless of their experience level.
Bella Protocol: One-Click Crypto Banking
Bella Protocol is a suite of DeFi products designed to make crypto banking simple. Bella DeFi Suite allows users to simply deposit and gain high yield from arbitrage strategies, either on-chain or via its custodial service. The project is focused on creating products with better user experience and it is designed to allow users to avoid jumping between different protocols by providing a simple and complete solution in one place.
It is automated, allowing users to click once and watch their assets grow. Bella Protocol describes its product suite as the BlackRock of Crypto Wealth Management, and its easy-to-use banking system provides a worthy answer to some of the problems with DeFi, although the platform does not offer crypto trading. It also acts more like a bank (as a custodial service), which has its advantages and drawbacks.
LocalCryptos: peer-to-peer crypto trading
LocalCryptos is a p2p crypto trading marketplace that is used by people in 130 different countries. It offers a wide variety of different cryptocurrencies for trading. Buyers and sellers can post ads on LocalCryptos offering to trade crypto through a range of different payment methods. LocalCryptos doesn’t collect your personal information or use any tracking services, so your privacy is protected. On the LocalCryptos platform, exchanges occur directly between users. Users never buy cryptocurrency from or sell cryptocurrency to LocalCryptos.
LocalCryptos is only designed for p2p crypto trades and does not offer any DeFi tools.
The Key To Banking the Unbanked
DeFi is currently the best option available for providing the unbanked with access to financial services, and in doing so, helping to lift millions of people out of poverty. Making the technology easily accessible is the first step toward achieving these goals.
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