How can bitcoin help the unbanked?
The debut of bitcoin in 2009 marked the beginning of the cryptocurrency revolution, which has seen bitcoin become the most popular digital currency in the world.
There are still questions around what the future of bitcoin will look like, but one thing is certain: bitcoin is bridging the gap and filling the holes of the legacy financial system — including providing financial options to the unbanked people of the world.
Who are the unbanked? Put simply, they are people who have rejected — or have been rejected by — the traditional banking system. How many unbanked people are there? There are almost one million unbanked people in Canada, or 3% of the adult population. On a larger scale, there are tens of millions of unbanked people living in nations around the world.
How do people become unbanked?
The unbanked fall into one of two categories: those who have chosen to give up on banks, and those who are simply unable to access personal banking services.
People who choose to be unbanked typically have an abiding distrust of banks. This enmity can be based on a single negative banking experience, or may stem from a history of poor customer service from one or more banks. Whatever the reason, these people have opted out of the traditional banking system.
Some people might choose to be unbanked because they live primarily cash-only lives. Such people often work odd jobs that pay workers in cash at the end of the day. Many side hustles and part-time service jobs rely on cash for compensation. Also, people who are on strict budgets may choose to live a cash-only life in order to avoid credit card debt.
Then there are those who have no viable options for personal banking, a situation becoming increasingly more common for people living in low-income households.
For example, unbanked people often can’t afford the monthly account fees — or maintain the minimum required account balances — needed to keep a basic savings or chequing account open. Someone who doesn’t have a permanent residence or a verifiable street address may find they are unable to open a bank account at all.
Residents of low-income areas often rely on in-branch visits as they don’t have a device capable of performing online banking. In 2021, the Pew Research Center reported that 24% of US adults with annual household incomes below $30K don’t own a smartphone; in addition, 43% of these low-income adults don’t have broadband internet service, and 41% of such individuals don’t own a desktop or laptop computer.
This reliance on in-branch banking has become a significant disadvantage as more banks have shut down their branches in poorer neighbourhoods, forcing residents to travel longer distances to visit a bank.
Low-income earners who don’t own a vehicle, or are stuck working one or more entry-level jobs, find it increasingly difficult to commute to a distant bank branch during its hours of operation.
On a more global scale, there are people who become unbanked due to violent conflicts in their homeland. Acts of war, civil insurrections, and military coups can all result in the inability to access a bank, leaving citizens without access to basic financial services. Russia’s 2022 invasion of the Ukraine is a recent example of how wars can create thousands of unbanked people.
What disadvantages do the unbanked face?
The unbanked must deal with challenges which are largely unknown by those who routinely have near 24/7 access to personal banking. Cashing or depositing cheques, paying bills, and making e-transfers are all common conveniences that remain beyond the reach of the unbanked.
When banks shut down branches in low-income areas, an additional disadvantage arises in the form of payday loan companies and pawn shops that rush in to fill these vacated properties. This effectively replaces basic banking services with marginal, non-beneficial personal finance alternatives.
Sending money across borders is a particularly harsh pain point for the unbanked. International money transfers typically incur some of the financial system’s largest transaction fees. Inexplicably, the greater the amount of money being sent, the more money the vendor keeps for themselves — as if the funds were physical cargo being shipped around the world, instead of digital signals being sent through a data line.
The unbanked who live in regions beset with armed conflict must sometimes put themselves at risk to receive cash sent from overseas — that is, if the designated pickup location hasn’t been abandoned or destroyed.
The unbanked and financial literacy
There are other consequences to being unbanked beyond a lack of personal banking services. The typical unbanked person has far less knowledge of personal finance options and strategies which could help them to improve and protect their earnings.
Unbanked people are effectively held in a state of financial illiteracy in comparison to members of more affluent households. Financial literacy is a key component of achieving health and stability in the modern world. But, this education usually doesn’t come to light until personal income reaches a certain threshold.
The education that could help someone of modest means improve their financial standing often remains undiscovered, creating yet another obstacle in a series of disadvantages facing low-income populations around the world.
The challenge then is to find ways to increase the income and financial knowledge of unbanked populations while also giving them the ability to perform financial transactions outside of the confines of high-cost alternatives.
Bitcoin can help the unbanked
Bitcoin is a digital currency built on a foundation of financial inclusion that gives the unbanked a way to participate in modern commerce without being blocked by social biases based on income, living circumstances, and employment status.
The growing adoption and acceptance of bitcoin allows the unbanked to use their money outside of the banking system. The unbanked can use bitcoin to pay bills, send money overseas, or hold onto their savings without having to pay exorbitant bank fees.
Bitcoin also provides a means to save and invest without the need to purchase RSPs, GICs, or other traditional banking products. Bitcoin gives the unbanked an entry point into owning a viable currency that can potentially increase in value over time.
Finally, bitcoin ownership provides a deeper perception of money that puts a new perspective on our current currency. We are living in a time of overprinted banknotes that have no logical backing — only a misplaced hope that they will maintain their value even as millions more are being pumped into circulation.
No reasonable person would expect a commodity to maintain its value even as ever-growing amounts are being produced with no rational limits or discernable strategy. Yet this is exactly what’s happening with traditional fiat currency.
If usability and financial literacy are key components to helping the unbanked start down a path to greater monetary stability, there is a role for bitcoin to play in this process. Bitcoin enables the unbanked to participate in the present economy while positioning them to achieve greater prosperity in the future.
Bitcoin Well offers two exciting bitcoin education programs: our Bitcoin Academy online course and our ongoing Bitcoin for Beginners free personal training sessions. Visit our website to learn more about these great programs.
