Who Are The Unbanked, Why Do We Care, and What’s Blockchain Got to Do With It

My Story of How to Get Neck Deep Into Cryptocurrency, Blockchain Technology and the Decentralised Future that is Now

I had my penny drop moment when I realised that everything I cared about to do with macroeconomic trends, politics and technology for good were wrapped up in cryptocurrency. I had to be involved.

Off the back of the annual Ethereum Developers Conference in May, themed ‘Never Forget Why You Started’, this short research piece explains how decentralised technology can help ‘The Unbanked’ and why there is need for all people of all interests and backgrounds to contribute to the space.

Special thanks to the Decentralised Future Fund, founded by the local developer community in Sydney, for supporting me and multiple colleagues with funding to attend, learn, connect and pay it forward in the industry. Learn more about DFF and upcoming funding applications rounds here.

How Decentralised Technology Can Help ‘The Unbanked’

Who are ‘The Unbanked’?

‘The Unbanked’ refers to people who do not use, or do not have access to banking institutions. Two billion people in the world still do not have a bank account. This results in reliance on a cash economy, and limited access to credit ratings, loans, interest, insurance, and other financial services.

Only 54% of adults in developing countries reported having a bank account with account ownership particularly lacking in Africa, Asia, Latin America and the Middle East. India is host to 21% of the world’s unbanked population and China to 12%.

This phenomenon does not just apply in developing countries. Approximately 9 million American households are unbanked. An additional 24.5 million households in the US are underbanked, meaning individuals still lack adequate access to the financial services a bank can provide.

Inequality amongst the population of unbanked people is also a major concern. Women comprise 42% of unbanked people worldwide, commonly facing additional barriers to accessing finance, including adequate identity documentation, or cultural barriers. This is despite research findings that women are competent fiscal stewards, that are more likely to assume financial responsibility for entire households and communities. Minorities are also commonly disadvantaged in terms of access to financial services in developed and developing contexts, leading to the need to understand why this is so.

Why Are People in the Adult Population Unbanked:

According to the World Bank, predominant reasons that people don’t have a bank account include:

  • Not enough money,
  • Reliant on the account of another family member,
  • Financial barriers, such as fees and interest,
  • Can’t access financial institutions, e.g. rural or remote communities,
  • Lack of necessary documentation, e.g. identity documents for immigrants or refugees,
  • Lack of trust in institutions to manage their finances.

Why Do We Care?

Financial inclusion is key for reducing poverty. Without access to savings and credit, people remain in a cycle of poverty and cannot participate in the mainstream economy.

Personal accounts have an important part to play in the founding and expanding of businesses, earning income, making transactions more efficient, secure and transparent, and managing savings (although, savings and accounts do not necessarily reduce inequality within a country).

World Bank Group President Jim Yong Kim said:

“Financial inclusion allows people to save for family needs, borrow to support a business, or build a cushion against an emergency. Having access to financial services is a critical step towards reducing both poverty and inequality, and new data on mobile phone ownership and internet access show unprecedented opportunities to use technology to achieve universal financial inclusion.” — 2018

The development and adoption of new technologies is already having a significant, positive impact on these concerns.

Technology Is Enabling Opportunities:

Technology innovation and adoption is a critical enabler of development. Technology enables giant leaps forward, especially in developing countries where access to network infrastructure layers, hardware and retail merchants is limited.

Between 2011 and 2014, the unbanked population fell by 20%, as 700 million adults became account holders. The Global Findex database shows that 515 million adults worldwide opened an account at a financial institution or through a mobile money provider between 2014 and 2017. This means that 69 percent of adults now have an account, up from 62 percent in 2014 and 51 percent in 2011.

Mobile money services are one example of how technology can improve people’s ability to earn an income and manage their funds. Mobile eWallets allow users to store and transfer funds from one mobile phone to another via mobile networks or third-party payment provider. Digital transactions through mobile digital wallets enable less reliance on expensive physical infrastructure, such brick-and-mortar bank-fronts. This is particularly meaningful in rural areas where it can lead to shorter travel distances and lower costs, thus allowing participation in the economy and reducing financial exclusion. Another way that eWallet technology is impacting the unbanked is via microfinance, such as the Grameen Bank in Bangladesh, which offers phones, credit loans and financial literacy training through their network.

About 1.7 billion adults remain unbanked — without an account at a financial institution or through a mobile money provider. In 2014 that number was 2 billion.

Practical use cases are evident in both developing and developed countries. Sub-Saharan Africa is the global leader in the use of mobile money (despite the persistence of financial, social and practical challenges, such as loan and interest repayments, and access for remote communities). Digital financial service providers furthering financial inclusion in the region include MPesa, MTN Mobile Money, Airtel Money and Orange Money.

Developed countries are using digital money technology to create a cashless society as well. The trend away from physical currency in Sweden has provoked conversations about launching a national cryptocurrency, the e-krona.

The movement towards decentralised technology, including blockchain and cryptocurrency, represents a pivotal opportunity to address some of these concerns on multiple levels.

Enter Decentralised Technology (The Web3 Revolution)

As blockchain technology matures; alternative solutions to the traditional banking system that are efficient, transparent and scalable are becoming possible.

Blockchain technology enables access to financial services with numerous potential solutions, including payment gateway infrastructure, security, scalability and identity requirements (KYC) needed to access financial services.

A reality where individuals own their sovereign identity to manage their finances, savings, and transactions in a decentralised, peer-to-peer network with meaningfully lower fees and barriers to entry is being built. To read more on examples of self sovereign digital identity solutions on blockchain, see Civic, Sovrin, Humaniq, Alastria, and uPort. To learn more about tools to address the ethical implications of blockchain technology, see The Blockchain Ethical Design Framework for Social Impact by Georgetown’s Cara LaPointe.

It is a pertinent time for people from interdisciplinary backgrounds to consider the impacts of decentralised technology, including the potential for it to create positive social impacts, while this technology is still in its infancy. Adoption is gaining momentum and the technological infrastructure challenges of security, and scalability are being addressed. The space needs experts across a range of disciplines to contribute to shaping and applying technology in meaningful ways.

What Can/Are We Doing About It?

The opportunity to unbank the bank is not just a social cause, but an economical business case. There is a strong market oriented opportunity for existing financial institutions to explore how to capture the benefits of new technologies. Accenture estimates that bringing unbanked adults and businesses into the formal banking sector could generate about $380 billion in new revenues for banks. This is the same opportunity that exists for providers that offer an alternative to the existing banking system.

“These unbanked individuals constitute a large market ready to adopt disruptive financial solutions outside of the traditional banking system. Blockchain provides a secure, scalable way to serve the needs of these individuals, and a number of technology companies are leveraging it to usher in a world in which everyone has access to the savings and credit that is an essential building block for economic growth.”

Decentralised technology is a revolutionary opportunity for social and economic transformation. The industry is highly relevant to both developers, investors and non-technical talent, who are passionate about application in real-world use cases.

Examples of Ethereum based Blockchain projects are making headway in serving the unbanked.

OmiseGO is building a peer-to-peer financial transactions network, a white-label eWallet software development kit and decentralised exchange for any currency or digital asset. The protocol removes centralised middlemen to allow for cross-border payments with lower fees and wildly better efficiency.

WeTrust is enabling a more inclusive financial system with a suite of decentralised apps (DApps). The first product is a Trusted Lending Circle decentralised applications that allows users to collaboratively save money with their peers. Benefiting from the finality and transparency provided by Blockchain, this instrument could a transition to enable individuals to build a Blockchain powered credit score.

Humaniq has created biometric identity verification on mobile through face and voice. Bio-identification eliminates the need for formal documentation. The Humaniq ecosystem also features a chat system, contacts (referral) system and an eWallet, to allow users to send and request funds directly without fees.

This is your invitation.

Unbank the Banked

Unbanked is not just about poor people in developing countries gaining access to the existing financial system. Unbanking the banked refers to the concept of moving existing users of the current banking system towards alternative payment and financial models. Decentralised financial solutions also need to attract users to truly challenge the status quo of high barriers to entry and multiple handlers per transaction. Adopters of the traditional banking system now have the choice to investigate an alternative banking infrastructure solution, that is decentralised, high transaction volume, international, and currency agnostic. Blockchain networks could outperform the incumbent system.

It is important to emphasise that technology solutions alone do not increase financial inclusion or mitigate against persistent inequalities in wealth, gender, and other factors.

‘To ensure that people benefit from digital financial services requires a well-developed payments system, good physical infrastructure, appropriate regulations, and vigorous consumer protection safeguards. And whether digital or analogue, financial services need to be tailored to the needs of disadvantaged groups such as women, poor people, and first-time users of financial services, who may have low literacy and numeracy skills’.
- Global Findex, The World Bank

There is still a way to go to overcome the barriers of access to financial services for the unbanked population.

In an effort to support the mission to Unbank the Banked, and continue to pursue my personal ‘why’, I joined the OmiseGO project in Bangkok.

Read more at omisego.network and ask about how you can get involved in the Ethereum Community.

Social scientist researcher in decentralised technologies and infrastructures. RMIT University Digital Ethnography Research Centre / Blockchain Innovation Hub