Applications of cryptocurrencies and blockchain technology for banking the unbanked to enable financial inclusion.

Globally around 1.7 billion people remain unbanked without having any access to financial institutions. They lack the most basic financial services, including having a bank account, no methods to procure a credit or debit card, or not even have access to loan aids from banks for the most basic services. Most of the unbanked population live on a wage of less than $5 per day.

Today’s financial ecosystem is largely inaccessible to the unbanked of the world. A number of issues limit the inclusiveness of the unbanked to be a part of the global financial system. First and foremost is a lack of geographical access to financial institutions such as banks. Although Fintech has enabled innovative payment solutions, a number of people, especially from developing countries, still rely upon a physical banking structure that is not available in individual locations.

Secondly, the current ecosystem for accessing financial services is highly costly, especially for people earning on a daily basis. Though microfinance institutions have been tackling this grappling issue, the model has been unsuccessful to create a major impact. Moreover, the unbanked lack the necessary personal documentation so as to access different services including credit, loans, mortgage, and insurance. Such issues have further led to an atmosphere of distrust among the unbanked and the financial institutions thereby widening the gap.

Governments and financial institutions are opening up new ways to accelerate financial inclusion for the unbanked of the world. For many right reasons, blockchain is one such technology that carries enormous potential in the transformation for banking the unbanked.

Application of Cryptocurrencies and Blockchain for Unbanked

Blockchain technology is a concept that has existed for decades but gained popularity with the advent of bitcoin in 2008. A decade later, blockchain is being explored for many applications in banking, finance, healthcare, real estate, donations, supply chain, logistics, voting, and more.

Cryptocurrencies and blockchain technology can be leveraged for enabling financial inclusion and extending basic banking services to the unbanked across the globe. Here are some of the applications of cryptocurrency tokens and blockchain for including the unbanked into the financial ecosystem.

Blockchain Facilitates Identity Documents

One of the most common reasons for unbanked not having access to a bank account is that they do not have the required identity documents that would help them to open a bank account. Billions of people are left either without a digital identity or have lost their identity documents. Moreover, banks refrain from offering credit loans to such individuals without any official data or past history. Without any access to credit, such individuals are left in a vicious cycle with no possible means to escape.

Blockchain enables us to create a ledger that records and stores the digital identities of each individual. Profiles can be created using biometric data, and these digital profiles can then be stored on the blockchain. Banks and financial institutions, with permission, can access the data and further give them access to bank accounts. Moreover, this builds a more efficient system for Know Your Customer(KYC) procedures and further reduces the labor-intensive work of collecting the same data multiple times.

Eliminates High Fees with Cryptocurrency Transactions

Blockchain transactions are facilitated directly between two parties without the need for any third party in the process. This eliminates the additional costs paid towards intermediaries and reduces the time taken for transactions to be processed and approved.

Additionally, this would allow unbanked to access global transactions without paying the percentage of banking fees, currency conversion, and intermediaries who process cross-border transactions. Virtual currencies would enable instantaneous cross-border transactions along with a substantial reduction in remittance fees.

Transparency in Government-Funding

Each year, the government allocates a certain portion of the budget towards financing the unbanked and bringing them under the financial ecosystem. However, a pertaining issue is that the money never reaches the needy and instead is a victim of corruption. This is especially true in developing countries, with the most underbanked population.

Blockchain provides tracking and tracing of the funding allocated by the government. Through blockchain, one can track if the money actually made it to the end-users. This is because blockchain facilitates an immutable and transparent ledger that records each step taken. The ledger allows anyone to track the history of the funds and verify the authenticity of transactions.

Leveraging the Adoption Rate of Smartphones

The range of unbanked and underbanked is in the billions, but they seem to have one thing in common: Smartphones. Moreover, unbanked living in small villages do not have a brick and mortar structure bank in their vicinity. However, statistics suggest that the adoption of smartphone and the internet is rapidly rising even in such remote areas

Virtual currencies backed by blockchain can be instantaneously transferred via smartphone devices. With mobile banking and payment solutions, we can accelerate bringing the unbanked into a formal financial ecosystem. Moreover, blockchain ensures that transactions are secure through cryptographic measures. This is an innovative approach for merging finance and technology to optimize the results.

Blockchain Financial Inclusion Case Study

There are several institutions working towards the cause of providing basic financial services to the unbanked. Let’s take a look at some of these case studies and how they are leveraging cryptocurrencies and blockchain technology for financial inclusion.

Humaniq

Tapping the potential of this unbanked section who have access to cell phones, Humaniq, a new generation financial service, is capitalizing on smartphone access to develop and further provide blockchain solutions as a way to bank the unbanked.

Humaniq utilizes the Ethereum blockchain and functions as a mobile bank. The users have to download the application, sign in, and make an account using biometrics like face or voice recognition. The identity of each individual, along with its unique biometric pattern, gets recorded on a secure and decentralized blockchain ledger.

Humaniq uses its native utility tokens, HMQ, for ease and functionality in payment processing and transfers. After signing in, the individual can earn token coins on completing different tasks like filling forms or watching a video. The earned tokens are then used to undertake trading activities and financial services like loans, peer-to-peer trading, lending, and insurance.