How Blockchain Will Help the Unbanked

Twitter: @infosec_andy

According to recent estimates, there are approximately 2 billion people currently without bank accounts. This *unbanked* population gets by on physical cash transactions that exist primarily off the grid.

The hyperconnected digital fabric of today’s commercial environment is one in which participants are required to have a bank account to send and receive payments both at home and abroad. Services like Venmo, Paypal, and Payoneer aren’t compatible with the unbanked population, and services that are, such as Western Union and Ria, are exploitatively expensive.

With the advent of blockchain technology, however, the unbanked may be able to stay that way and still have access to digital payments and remittances.

The Current Paradigm

What effect does the lack of access to banking have for the unbanked? In general, they’re unable to send or make payments with anything other than physical cash. Much of the unbanked sector is made up of migrant workers who need to send money back home. In the absence of a bank account, the only choice these workers have is to send money via cross-border remittances companies such as Western Union and MoneyGram.

A migrant worker transferring money from Italy to Cameroon will pay, on average, at least 15% and as high as 25% of the amount transferred. Western Union, MoneyGram, and Ria are just a few global money transfer solutions garnering these high fees in excess of $5 billion a year (in 2017, Western Union reported a $5.5 billion profit after sending $80 billion globally in the same year).

Adding to the above scenario is the fact that generally speaking, the majority of the unbanked population is found in developing nations with low income per capita. In Africa, of the 10% who have a bank account, 38% use their account strictly for receiving remittances from abroad. These metrics are largely similar in Southeast Asia, much of the Middle East, and entire swaths of Latin America.

As services transition away from a reliance on cash and toward purely digital/paperless systems, the unbanked find themselves unable to participate in the modernization of society.

Blockchain Offers Financial Inclusion to the Unbanked

If there is one thing blockchain does better than any other technology before it, it is global payments. Whereas Western Union, PayPal, and international bank transfers are expensive, have delays from one to several business days to send, and require accounts, blockchain payments are done within minutes, have minimal transaction fees, and don’t need bank accounts.

Stellar Lumens, for example, is aiming to bank the unbanked by providing a low-cost, instant, and inclusive payment network. To be onboarded, users will only need a smartphone, a Stellar Lumens wallet, and cash to top their wallet up at any cash in/out point (multi-currency crypto ATMs, convenience stores, and others).

OmiseGo is a project closely related with Ethereum that is building the decentralized economy and promises to *unbank the banked*. The OMG network will connect merchants to users enabling them to pay in both crypto and fiat currencies. The OMG roadmap includes a plan to create cash in/out points, building an inclusive financial network that, with enough adoption, can make being banked a thing of the past.

Algorand, an up-and-coming cryptocurrency built by a team from MIT, is hoping that their near feeless, infinitely scalable currency will pick up where bitcoin left off and provide people around the world with an efficient and easy way to transact without banks in the middle.

Between these projects and the many more that are sure to come, it appears that extending financial inclusion to the world’s unbanked just may be blockchain’s calling.