Blockchain could help more people gain access to financial services

About two billion people currently lack access to the most basic banking facilities. Given how important those financial infrastructures have become to socioeconomic progress, current day banking has to be rendered more flexible in order to encompass people from diverse backgrounds. A key tool that could potentially help in the advancement of the aforementioned endeavor is blockchain. However, a lot remains to be done for the said technology to eventually change the current state of banking.

A hefty chunk of the world’s population lack access to crucial facilities

As per both the 2014 Global Findex and the IMF Financial Access Survey, a near quarter of the world population does not have access to the most basic financial services. Given that having a bank account opens multiple doors towards a better standard of living, it is quite alarming to realize that around 2 billion people are currently barred from possibilities such as maintaining a savings account, borrowing for educational purposes, obtaining financial support to start a business, or even applying for a mortgage.

With the rising popularity of blockchain-based financial services, many think that, in theory, the said technology could change the face of banking accessibility by defeating our current system’s flaws and limitations. However, in practice, the idea does not look particularly feasible. At least, not if one takes into consideration most countries’ current financial infrastructures. Sadly, it seems that blockchain has become subject to the fatality that is being thrown casually in every conversation as the result of a fresh online buzz.

Just a few months back, the World Food Program came up with an interesting new way of distributing aid to refugees. As they were expecting the usual UN trucks to shower them with the food and water they were in dire need of, the 10 000 Syrian refugees based in the Azraq Camp of Jordan were quite surprised upon receiving their much-awaited aid in the form of electronic vouchers. The World Food Program settled upon using the blockchain-based currency Ethereum to power one of their latest missions. The experiment was part of a pilot program geared towards exploring new ways of providing relief more efficiently. Given how successful the mission was, Robert Opp, WFP’s director of innovation and change management, even stated:

“When I think about blockchain, it is not just about San Francisco and New York. If cryptocurrencies can reach the poorest people in the world, the most vulnerable people in the world, I really think they could initiate a transformation story.”

The scenario indeed sounds idyllic. And while the current situation does not favor the full implementation of blockchain-based services in the humanitarian context, there are indeed a few things that could help in preparing a better setting for a potential monetary revolution.

An automated online ledger to monitor transactions in real time

Blockchain is a technology used to monitor electronic transactions. It is revolutionary in the sense that it is highly autonomous, implying that human intervention is seldom required. The algorithm behind blockchain replicates a ledger system that automatically verifies each transaction effectuated through an array of different services. In other words, servers that store diligently working pieces of code are utilized to cross-check and record funds being transferred so as to prevent double spending – a situation where two or more transactions attempt to use the same electronic funds.

Offering financial services to those lacking access to banking facilities

When it comes to money, financial providers and individuals alike will always choose the safest option possible. That is why infrastructures like Know Your Customer and Anti-Money Laundering, often abbreviated as KYC and AML respectively, have been implemented into the banking system since long. Both primarily serve transparency, helping banks and other institutions to establish a clear profiling of each of their customers so as to reduce the risks of fraudulent activity on their networks. However, for people living in certain parts of Asia and Africa, this extensive verification of identity can be a significant obstacle.

Gathering all of the documents required for the creation of a standard bank account can get particularly cumbersome for people residing in remote regions or in parts of the world where infrastructure is unfavorable to extensive traveling. As a result, the whole process of signing up for a financial service can be time-consuming and resource exhausting, which ends up being a big turn-off for many potential customers. Blockchain could put a term to this situation through its extremely capable ledger system. A centralized database connecting all of the financial and administrative institutions could be created to store customer data. That way, all of the information that one would need for the creation of a bank account or for access to any other type of financial services could be readily available in one place, thus, bringing down a major barrier for many.

Facilitating transactions for mobile users around the globe

The influence of mobile phones in countries where financial exclusion is common has proven to be particularly high. After careful analysis, however, this piece of information comes in as unsurprising given how the handheld device helps people with buy goods from neighboring countries and migrant workers to send funds back home. It has been predicted that there will be 9.2 billion mobile phone subscriptions by the year 2020. The number is quite massive indeed, given that we are only around 7.5 billion people on planet Earth at the time of writing.

Creating a blockchain-based payment rail that would be compatible with the most mobile interfaces would, therefore, help in introducing the maximum number of currently financially excluded people to a simplified version of banking. Using a platform that is already popular amongst this demographic could help the latter to access financial services from the comfort of their homes, and at lower rates.

Adapting existing monetary schemes to a more diverse demographic

When it comes to finances, trust is often a big factor in determining whether or not one decides to go for a particular service. No wonder people with limited resources will tend to be extremely careful with their money. This implies that they will generally avoid complex schemes like insurance. For example, in India, the adoption of insurance only elevates to a mere 5 percent. Implementing blockchain into financial services that can further the financial comfort of the general population might help in reducing costs involved, and therefore, eliminating the perception that most of those complex financial schemes are “scams” or “ripoffs”. For instance, insurance companies can start designing short-term policies or usage-based insurance at a reduced costs while still making a profit through blockchain. The costs of plans like personal injury insurance, hospital care coverage, and bike insurance will all come down, and attract more people.

By adapting their products to a larger and more diverse audience through blockchain, financial providers will be able to extend their business and help out millions of people in the process.

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