- Almost a third of the world’s adults are “unbanked,” and the problem is not confined to the developing world.
- Mobile adoption supports financial inclusion around the world.
- The increased adoption of cryptocurrency is also improving financial inclusion, while helping to increase wealth and protect assets.
Many people don’t realize that opening a bank account, sending money to friends, applying for a mortgage, and other basic financial services that we take for granted are luxuries in the developing world.
According to the World Bank, nearly a third of adults in the world are “unbanked,” which means they do not use formal financial services. This is almost 2 billion people who do not have access to the traditional financial system. They cannot protect their money, access wealth building tools and services, or effectively plan for their future.
But the problem is not confined to the developing world.
The Federal Reserve found that 22% of adults in the United States are either unbanked or underbanked. This represents about 63 million Americans who either have no bank accounts or rely on “alternative financial services products” such as money orders, check cashing services, or payday loans to meet their financial needs. .
These problems are exacerbated when a pandemic like COVID-19 strikes. According to Oxfam, nine months after the start of the COVID-19 pandemic, about a third of the world’s population, or nearly 3 billion people, had no financial safety net to fall back on.
Mobile phones for easy payments and savings
However, there is hope. Of the estimated 2 billion unbanked people in the world, about two-thirds have a cell phone. With the increasing adoption of mobile phones and the Internet, financial services can be provided to unbanked people through their mobile devices.
This means that anyone with a mobile phone can pay their bills or set aside a small amount each month in savings.
Kenya’s M-pesa mobile payment system is a widely cited success story for increased financial inclusion through mobile phone adoption.
Started by a local Kenyan telecommunications company, the system allows Kenyans to send money, pay bills and make withdrawals from physical locations, all using their mobile phones. Launched in 2007, the M-pesa network now has more than 40 million users and has spread to nearly 7 African countries.
In China, mobile adoption has also boosted financial inclusion. Alipay’s financial arm, Ant Group, pioneered this practice by providing microfinance services. In 2013, Ant Group launched Yu’e Bao, which stands for “Remaining Treasure,” to allow all Alipay users with as little as 1 RMB ($ 0.15) to put their money into a market fund. monetary which yields higher rates than those provided. by the government in the banks.
The effort was a huge success. Just four years after its launch, Yu’e Bao has grown into the world’s largest money market fund, overtaking major US fund owners such as JP Morgan and Fidelity.
In 2019, 588 million people had placed their savings in a Yu’e Bao account, meaning that the fund’s assets under management totaled nearly $ 167 billion.
Cryptocurrencies will take financial inclusion to the next level
Any positive trends towards increased financial inclusion can now be accelerated by blockchain technology and, more specifically, cryptocurrencies.
Blockchain is a decentralized ledger where participants can confirm transactions without the need for a central authority. Cryptocurrencies are a digital medium of exchange whose underlying technology is blockchain – two of the most popular being Bitcoin and Ethereum.
The fact that the technology is decentralized is the main reason that no existing financial institution or government owns or manages Bitcoin.
Ten years after the creation of Bitcoin, cryptocurrencies are finally adopted by the general public globally, especially in developing countries. For example, nearly a third of Nigerians now own some form of cryptocurrency. Nigerians actively use cryptocurrency to buy or sell goods and services and send money across borders to family and friends.
High rates of cryptocurrency adoption have also been recorded in developing countries, such as Vietnam, Turkey, and South Africa.
The increased adoption of cryptocurrency coupled with increased innovation in cryptocurrency offers a real opportunity to democratize the traditional financial system.
From safeguarding assets to growing wealth
Cryptocurrencies, such as stablecoins, which are cryptocurrencies linked to other assets such as the US dollar, can now be a safer and more reliable way to protect people’s assets.
For example, if you lived in Nigeria, you would have seen your net worth plummet by almost 50% since 2016, with the Nigerian naira having risen from around 200 naira per US dollar to almost 400 naira per US dollar by the end. from 2020. However, if these assets had been held in a stablecoin like Tether (USDT), a stablecoin pegged to the US dollar, they would have been protected from any drastic devaluation.
In addition to protecting assets, cryptocurrencies can also be used to increase wealth.
In many countries, wealth creation tools and services are reserved for those with a large number of investable assets. However, with cryptocurrencies, such as tokenized stocks – which are tokenized versions of traditional stocks – anyone in the world can get exposure to stocks like Apple, Amazon, and Tesla.
Because they are tokenized, users can start investing in tokenized stocks with as little as $ 5. This is possible because they can buy fractions of a token, which inherently represent fractions of a share.
Cryptocurrencies also allow people to earn interest on their assets. With the growth of crypto innovations such as staking and decentralized finance (DeFi), anyone in the world can earn interest, also known as “yield”, by owning and staking certain tokens. No intermediary is necessary to complete the transaction.
In 2020 alone, the total value of DeFi projects increased 300 times to around $ 21 billion.
Cryptocurrencies and blockchain technology, coupled with the global growth in mobile and even internet adoption, are mitigating growing financial inequalities.
And it is not inconceivable to imagine that in the coming decades, the world will have a much more democratized and accessible financial system. Financial inclusion could be achieved through cryptocurrencies.