Can crypto handle the biggest obstacle facing the unbanked?

The biggest obstacle among those without a bank is not the know-your-customer requirements. It is that they have no income – 59% stated this as the primary reason why they do not have a bank account, and 18% stated a lack of documentation.

Trying to convince someone without income to open an account sounds like a big order, and offering a crypto address as an alternative does not seem like a big deal either. But people who are much better than I think, crypto can help. And it starts with understanding why 59% do not have an income – or enough of an income worth storing in a safe place.

We sat down with Wallex, an asset and digital asset services provider, to learn more.

An evil circle

The global banking system excludes a staggering 1.7 billion people.

Behind that number is a vicious circle of economic conditions and banking alternatives that perpetuate global income inequality.

Economic exclusion is expensive. Let’s take El Salvador, for example – 70% of Salvadoreños are without a bank, and many are dependent on overseas money transfers. But without a bank account, money transfer services like Western Union will charge them significantly more in cash payment fees.

The question of identity

Many people mistakenly draw a line between a lack of a legitimate identity and a lack of banking services. Both are problems related to the hierarchy of needs. Instead of a line between the two, it is better to visualize the causal relationship that stems from the cycle of poverty.

No matter where you live, identification costs money. People living in a country with a developed economy are more likely to pay that cost because they have covered basic daily survival needs. For people who are struggling financially in countries with developing economies, the incentive to pay for necessities of life far outweighs what little their government can offer. While it may ultimately help break the cycle of poverty, it does not provide food on the table.

The lack of incentive is not just limited to poor people. It costs the banks large administrative costs with little promise of return. As a result, small traditional banks are less likely to be proactive in developing know-how (KYC) and anti-money laundering (AML) solutions for these communities.

On top of that, research has found that 16% of those without a bank in the US state distrust of banks as their primary concern. Similar studies show that the figure is 32% for Latin America and Central Asia.

The current policy has been ineffective in solving the problem of financial inclusion. What is needed is the application of the existing KYC / AML policy, but with a completely different methodology – one that is proactive in making onboarding easier and cheaper for these populations.

Neobanks can help

The brains behind Wallex believe that crypto can help those who do not have banks, through blockchain-driven neo-banks. Neobanks emerged as an alternative to online banking services. But with advances in blockchain technology and cryptocurrency integration, it can now offer these services in faster and more user-friendly ways. But most importantly, it lowers cost barriers for those without a bank.

These app-based fintechs are platformed on mobile infrastructure. Mobile phone ownership is already high in developing countries and continues to grow annually. Wallex has embraced neobanking with an app-based offering that simplifies both fiat and cryptocurrency, with seamless payments and transfers.

Unlike conventional banks, which are locked into older systems, neobanks have the flexibility to take a more innovative approach to KYC. Some neobanks have taken to offering levels of service based on the level of credentials given by the user. This approach means that at least the most basic level of financial services can be provided to customers who are unable to provide documentation or those who are opposed to doing so.

It goes beyond onboarding. Larger differences in wealth arise when people do not have the opportunity to access savings and investment products. It is not just a case of access, but an ability to maintain and grow wealth through access to savings products. Studies have shown that access to savings and lending products can increase gross domestic product (GDP) by 14% to 30% in developing countries. Crypto can help move values ​​around the economy far more efficiently than at the individual and societal level.

Stablecoins – a boundless innovation

International money transfers are another area of ​​great importance for those without a bank. They offer a critical lifeline to those who need it. This is where cryptocurrencies, more specifically stack coins, can play an important role, given that they are limitless and lack the volatility of other cryptocurrencies. Furthermore, they enable access to the electronic global economy. 70% of new value created worldwide over the next decade will be based on digitally enabled business models for platforms.

As Wallex founder and CEO Simone Mazzuca puts it, blockchain represents a development of SEPA and SWIFT systems, with the bonus that it is available to everyone and simplifies real-time transfers.

The fact that public blockchains are transparent is crucial, as it will allow regulation to develop into an “identity load” approach. Data and pattern detection can be used to drive down illegal activity. In the meantime, everyone gets equal access to financing without reason for financial exclusion.

Through TOKASH – Wallex’s system for tokenized cash payments – the company is working towards becoming the first CBDC – Commercial Bank of Digital Currency – by planning to distribute 12 stack coins in Q3 this year. With this expansion, the company builds on its experience in launching EURST, a stable euro currency that is fully asset-backed with FDIC-insured USD reserves that are revised in real time.

It is a time of great innovation in finance, and with the help of cryptocurrency and neobanking, there is every reason to believe that we can finally make financial exclusion a thing of the past.

This content is sponsored by Wallex.

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