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4 Ways Technology Brings Financial Services to the Unbanked

We tend to box the “unbanked” sector as a homogenous group of people without bank accounts. They are not totally homogenous, though — at least in terms of why they have been off the grid of formal financial systems for so long.

Granted, many of the over 2 billion adults have no accounts because they do not have enough cash to save. Statistics from the World Bank does show that among the world’s poor specifically, nearly 80 percent are excluded from the formal banking system.

Technology has ways to get the unbanked to borrow, lend, and send money via mobile phones.

But there are other reasons for such exclusion. It could be a personal choice to remain excluded because they are uncomfortable dealing with bankers or stepping inside a bank.

There are those who are capable of saving, but have been blacklisted by banks due to an earlier financial misstep. Then, there are those who live in geographically isolated areas, and thus have difficulty accessing the nearest banking facility.

All told, we find the unbanked losing out on the opportunities afforded to bank account holders in terms of cost and time savings, and the suite of financial services.

SMS-and-Mobile Money Tandem

At the very least, mobile phones have brought mobile money to the unbanked.

One of the best-known use cases for mobile money is M-pesa in Kenya, where it is used as a peer-to-peer nonbank-based solution. The phones do not necessarily have to be the “smart” type even: Any working mobile phone will do since cash transfers are SMS-based transactions.

Through their telecom provider’s SIM cards, Kenyans are assigned individual account codes that they top up with cash by going to “agents”, which are simply outlets owned by small businesses or individuals that act as tellers. Likewise, to cash in on the amount, they simply go to these same agents.

Power to the Unbanked

· Mobile domestic transfers. Mobile phones are used to send money to another party through major cash transfer agencies. If the intended recipient of cash does not have a bank account, the money is routed to a nearby shop (which could just be a mom-and-pop store) with a bank account. The recipient then picks up the cash from the shop.

· Lending. As unbanked individuals do not have any banking history that can be used to assess their credit worthiness, fintech solutions turn to Big Data. Assuming the borrower has Internet access, lenders can incorporate borrowers’ smartphone behavior data as an alternative measure of credit risk into their underwriting algorithms.

Data used as credit assessment indicators include the amount topped up, mobility, location, and call durations. A study done by Daniel Bjorkegren on over 3,000 loans of a Caribbean bank showed that certain behavioral patterns are indicators of the chances of default. For example, the variation and frequency of phone use, and measures of mobility were associated with lower default risk.

· E-Commerce/online shopping. No credit cards but own cryptocurrencies? Then why not try the crypto-based debit cards. While this is not the preferred solution of the unbanked poor, crypto-based debit cards may be the option for the unbanked who simply find no urgency to use bank-issued debit or credit cards.

Today, cryptocurrency platforms such as TenX offer debit cards that accept various cryptocurrencies. When the card is used for purchases, the appropriate amount of digital currency is instantly sold and the funds transferred to the merchant.

Traxion.Tech, meanwhile, is building its platform that will bring in the unbanked as well as have both local currencies and cryptocurrencies sitting in one wallet.

· Cross-border payments. A huge part of remittances from overseas workers is often earmarked to pay for regular bills such as on utilities of the family back home. When the recipients of remittances are unbanked, they often have to undertake multiple steps to receive the remittance (ie., go to a remittance center) and then to settle their bills via payment centers. Companies such as ZymPay lessen the friction in the process by giving the overseas worker the power to pay the bills right on the platform.

There is a practical reason for this solution, too: It gives the overseas worker the guarantee that part of the remittance flows directly into their regular household payables.

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Traxion.Tech will have a token generation event in May 2018. To read the Traxion whitepaper or join the whitelist, go to Traxion.Tech.

Ann Cuisia-Lindayag is the CEO of Traxion.Tech, which is creating a bank-in-a-wallet using a blockchain-driven environment. You can contact her via email at Acuisia@traxionhub.com.