The transformative role of blockchain technology for financial inclusion

by Maya Middlemiss

Inclusiveness has been a core principle for LocalCoinSwap since the inception of the business plan, to offer cryptocurrency exchange services to any trader in any location worldwide, bringing any fiat currency to the table.

But what does inclusion mean, in broader financial terms? For those of us in developed economies with access to a suite of products and services we take for granted, it’s difficult to imagine what it must be like to exist without this. To forget, or remain blissfully unaware, that 2 billion of the world’s population are either partially or completely ‘unbanked’.

It’s also easy to think this correlates with GDP and absolute poverty, but it’s more complicated than that. There are many parts of the world where financial inclusion is sharply divisive in itself – affecting almost all women, for example. And even within so-called ‘developed’ economies, there is an invisible underclass who manage without the infrastructure we assume is normal –7% of US residents, millions of people, are unbanked. Another even larger segment is defined as ‘underbanked’, including vulnerable populations like migrant workers and those on low and unsteady incomes, who can access only the most basic (and frequently the most costly) financial services.

Being unbanked or underbanked means exclusion from investment opportunities and any chance to improve personal circumstances, to break out of a cycle of poverty which can last for generations. It means no access to any but the most dangerous and expensive lines of credit, and it means no consumer protection – or theft protection – when dealing purely in hard cash. Achieving Universal Financial Access (UFA) is a target goal for the World Bank to achieve by 2020, but there’s a long way to go, in every country of the world.

Various solutions have been attempted to bring support to unbanked communities, from mobile phone payments to prepaid credit cards, but they all come at a price – and frequently involve many links in a chain of middlemen, all taking a cut from the funds of some of the poorest people in the world.

But blockchain-based cryptocurrency solutions have real potential to change this, and put the power (and all the wealth) back into the hands of those who own it. Whilst there are many obstacles to mass adoption in all regions, those with most to gain from having access to financial tools and services are finding solutions in the crypto world, to areas from which traditional institutions exclude them:

  • Remittances, from those who send money home from work in more affluent areas, are frequently subject to swingeing costs (up to 11%) via traditional providers. Services like BitPesa or Bitwala can convert from one fiat currency to another via bitcoin for greatly reduced cost, as well as much shorter processing times. This industry alone is worth $400m, and vividly illustrates the way that different financial worlds can operate in parallel alongside one another, largely invisible to those not participating in it.

  • Wallet apps can be run on basic Android phones, and are increasingly incorporating NFC and SMS based solutions to transmitting payments, so that transactions can take place in areas with no wifi network, truly peer-to-peer.

  • Wallets can be used to store value and accumulate wealth, particularly for anyone surviving in a local economy facing financial crisis or hyperinflation. It provides a refuge for hard-won financial security, in parts of the world like Venezuela and Zimbabwe, where people have watched the value of the money they earn literally dissolving over the course of a single day.

  • Enterprising freelancers anywhere in the world can acquire ‘hard’ crypto for their work, via a growing range of platforms, from microtasks to bounty schemes to specialist service providers.

  • Cryptolending can release fiat funds from accumulated cryptoassets, to provide anything from survival spending to investment in a business or tools. Unbanked borrowers find themselves excluded from most mainstream lines of credit, and unable to establish a history of reliable debt repayment.

  • Distribution of aid can be monitored on the blockchain for transparency to donors and institutions – overcoming doubts and concerns about integrity and fairness in the NGO space, and encouraging confidence in the effectiveness of the process.

  • Tokenization can be used to unlock value from illiquid assets like land or cattle, for some of the poorest people in the world – who frequently play a vital role at the foot of the food production supply chain for far wealthier countries and corporations.

  • Blockchain projects can create digital identities, for those who have fallen through the cracks in developed societies or lost everything through migration or disaster, and have no way to participate in the kind of KYC/AML procedures required to access traditional banking products.

Of course there are plenty of roadblocks to overcome, the greatest being simply that of widespread knowledge and adoption. Earning cryptocurrency is no good if you can’t spend it, and there are difficulties in particular with access to the hardware required to run wallets and access exchanges (things which again we easily take for granted if they are an everyday part of our lives).

However those who survive at the margins of our societies are frequently some of the most creative and ingenious problem-solvers, adept at repurposing existing technology, and finding ways to get things done with what is available to them.

Furthermore, technology adoption in such spaces frequently proceeds in disjointed leap-frog steps – without the luxury of leisurely uptake and a wait-and-see attitude, and waiting for the infrastructure to catch up. An example is the way mobile phone adoption exploded across parts of Africa, which had been left out of the fixed line phone network most of the world can access directly – and now, no one will ever lay copper wires in those parts of the world, such is the wireless success story.

Those same mobile networks will soon be powering crypto apps and wallets, for those who traditional financial services left behind in the same way that traditional telecoms did.

It’s early days for the financially excluded when it comes to crypto, but remember that it’s also early days for all of us. As services like Local Coin Swap come to market, bringing genuine inclusion and accessibility to crypto trading, we are doing so as part of a wider ecosystem of services designed to bring more and more people into the economy of the future.

This is a good thing for all of us, and for the world we live in.