Banking the Unbanked: A Risky Proposition or a Market Opportunity?
The Global Findex, a World Bank program launched in 2011 in over 140 countries studies how adults perform financial transactions across the world — how they borrow, save, make payments and manage financial risks. Its focus was in poor and developing regions of the world where it tracks the progress of financial inclusion. Its latest report says that more than 2 billion of the world’s population is still away from the financial mainstream.
Why Is There an Unbanked Population?
In a rapidly growing world, why such a huge chunk is still deprived from the benefits of a robust economy? The reasons for this are manifold. These include, more importantly to this context, the apprehensions of banks and financial institutions to reach these populations. The reasons are obvious. These people represent very low socio-economic groups and thus do not present a lucrative market. Other reasons include restrictive regulations, governance failures, lack of financial infrastructure and lack of suitable products. In all, these reasons are inherent to the traditional financial system.
Technology — An Enabler for Financial Inclusion?
The World Bank in its report further says that the fastest way to enhance financial inclusion is to adopt newer technologies. Mobile money accounts are one way to bring in many people within the current financial ecosystem. Kenya, for example, is a curious instance of less financial inclusion but with a greater acceptance of mobile money. Sub-Saharan Africa is more inclined towards newer technology than the more developed regions of the world. This means that, regardless of the region, technology can be incorporated into the current financial system to make it more lucrative and easy for the unbanked population to be a part of.
Are Traditional Banks Afraid of Serving the Unbanked?
As mentioned earlier, the traditional banking sector has always been wary of entering regions where the majority of adults are still unbanked. Fear of increasing their non-performing assets by providing collateral-free, unsecure loans is a major hurdle for these institutions to enter such regions. Financial losses and costs of infrastructure set-up where returns are next to nothing have put off many a brave and ambitious banking project.
Banking the Unbanked — The Opportunity
And yet, with all said and done, the total market opportunity from the unbanked population is a whopping $380 billion! This is estimated revenue that banks can generate within emerging markets by the year 2020. How do banks do this? By helping small businesses through lendings and other fee-based services and by raising the spending levels of unbanked populations to that of lower-middle income countries by including them into the financial mainstream. The window of opportunity is open. But are banks and financial institutions ready to capture this opportunity?
While financial technology, or fintech, aims to revolutionize traditional banking, it is still plagued with the innate problems of conventional banking. Transaction fees, limits on deposits and withdrawals, hurdles in remittances, lending problems and KYC norms create a real issue for a majority of individuals wishing to enter the financial mainstream. This calls for a need to create a system that reduces the pain points of the traditional system while allowing unbridled access to one’s money without the need to pay exorbitant fees and remain slaves of banking limits.
Blockchain To The Rescue!
After a not-so-spectacular, even skeptical, reception in 2008, blockchain technology has really come a long way. In less than a decade, it is poised to become the single, most important technology (arguably, of course!) to revolutionize every aspect of human lives. How? Well, that is a discussion for another time. But the fact remains that this technology has already started creating ripples, nay waves, in the financial sector.
The beauty of the blockchain technology is its open accessibility. If, as an individual, I am depositing an amount of my money in a bank account, I have all the right in the world to have unconstrained access to that money, as if it were lying in my personal wallet. With an ecosystem that is powered by blockchain, this is possible.
Along with easy accessibility, blockchain technology also creates a system that does not rely on unreasonable, sometimes extortionate, transaction fees and complex identification requirements. All of these factors are extremely important in removing the barriers that have kept so many people away from the financial mainstream. Furthermore, blockchain has the ability to reduce banks’ infrastructure costs attributable to cross-border payments, securities trading and regulatory compliance by between $15–20 billion per annum by 2022.
Why Do We Need Financial Inclusion?
True financial inclusion is the primary aim of the World Bank. Why is financial inclusion important? Because it can help individuals manage, and even overcome, poverty better. It can help them cope with the challenges with irregular income and large expenses. The fact that they are now in the financial mainstream means that they can get access to better healthcare and better education. For small and micro entrepreneurs, financial inclusion means funds for setting up or expanding their businesses. Funds help them manage risks better. More businesses under the financial system mean more tax revenues. Individual savings will mobilize the economy positively. The benefits of financial inclusion are tremendous.
LaLa World — A Blockchain-Powered Financial Ecosystem
LaLa World is one such financial ecosystem that has blockchain technology at its heart. It is an ambitious attempt at bringing the more than 2 billion unbanked adults in the world under the global financial umbrella. A simple, yet powerful wallet — the LaLa Wallet — powers the LaLa World ecosystem. It is a one-stop platform for all of an individual’s financial transactions.
Countries in sub-Saharan Africa have proven that even with low acceptance of traditional banking, mobile money is still popular and has penetrated effectively within various socio-economic strata. Mobile penetration is at an all-time high, even in the poorest of countries. Mobile banking is being touted as the next big thing in bringing the dream of total financial inclusion to reality. Combine it with blockchain technology and you have a sure winner.
LaLa World aims to use the infrastructure, network and reach of the traditional financial system and combine it with the power of blockchain to create an ecosystem that is free of traditional barriers and hurdles. Such a system will create an easy, seamless and comprehensive financial system that is acceptable throughout the world. This system can play an important role in bringng about true financial inclusion and the eventual prosperity that has been envisaged by financial gurus around the world.
