Achieving global financial inclusion is a huge undertaking that will have an enormous positive social impact on the world. Giving individuals and businesses equitable access to decentralized, modern financial tools will ultimately reduce poverty, boost prosperity, and make the world a more equitable place.
Financial inclusion is also a work in progress. Most of the possibilities held in its promise have yet to be realized. Our mission at WeTrust, since the beginning, has been to enable financial inclusion through blockchain technology. Not only do we think a financially inclusive future is possible, we think blockchain is one of the keys to achieving it.
However, a decentralized future as we envision it can be hard to imagine for those unfamiliar with the disruptive potential of blockchain. In addition, financial inclusion is an undertaking many years — or even decades — in the making.
To that end, we wanted to take a moment to explore what we mean by financial inclusion, and paint a vision of the future as we see it.Global access for everyone, equally
According to WorldBank.org,
Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs — transactions, payments, savings, credit and insurance — delivered in a responsible and sustainable way.
Implicit in this definition is the promise of access for everyone — around the world, globally. Many people in developed countries probably feel like they already have access to these things — but what about someone who doesn’t have a big bank in the town where they live? What if the bank is hundreds of miles away?
In the United States alone, a 2015 survey by the FDIC estimates that 7 percent or 9 million households were unbanked. In addition to these unbanked, there are 24.5 million underbanked households, which are those that have access to a checking or savings account but resort to using alternative financial products because they cannot qualify for traditional financial instruments.
Worldwide, the percentage of unbanked and underbanked is even higher. The World Bank maintains a global database of the unbanked which is updated every three years. Fortunately, they’ve presented good news each time they’ve completed the survey. In 2011, the first year of the survey, they found 2.5 billion across the globe were unbanked. By 2017, The World Bank reported a drop in the number of global unbanked to 1.7 billion.
Being unbanked entails more than just not having access to a bank account. The unbanked have a higher risk of having their wealth stolen, have a more difficult time accessing wealth, and have less access to bank services such as loans, mortgages, and free check cashing. These risks differ from country to country, but the unbanked in wealthy countries are especially affected by their inability to access services and wealth.
Your bank account is part of your identity, a way for central institutions like the government and other businesses to check your financial reliability and your citizenship status. Having a bank account in the modern world is a form of legitimization. On top of being unbanked, many struggle with saving enough money to purchase a government ID, providing for medical care, or accessing credit.
What does blockchain have to do with the unbanked? Blockchain has already made it easier for people to make international payments across borders. Many are already dreaming of ways blockchain can be used to support the unbanked. Blockchain could provide the unbanked with mobile access to decentralized financial tools, protection around their identity, access to credit, and insurance.
Mobile access to a broad range of decentralized financial tools
2018 was an important milestone for internet access. The number of web users surpassed 4 billion in 2018, with over 51 percent of web traffic occurring over mobile. That’s over half of the world’s population that now has access to the internet, and yet there are still those without access to financial services.
As users gain access to the internet using more affordable mobile devices, it’s important to make sure that the financial services they need are also available on mobile devices and not just on desktop computers.
Companies like Smart Money and M-Pesa, pioneers in the mobile payments industry, have helped many people get access to financial services, but there are still 1.7 billion people globally who are unable to access them. A financially inclusive world must be a mobile world. If we want to get our products to the unbanked and underbanked, we have to make sure that they’re accessible on mobile devices.
Mobile blockchain browsers like Trust Wallet and Cipher Browser and the HTC Exodus phone (which is blockchain and dApp enabled) are making progress on mobile solutions to interact with the blockchain, but we have a long way to go before everyone in the world has access to the financial tools they need to make the world a more equal place.
Better identity protection and proof
As we interact with the world, there are many instances where we must prove our identity and who we are. Whether you’re traveling from one country to another, asking for a loan, or are forced to immigrate to a different country for your own safety, proving your identity is crucial.
In many countries, you prove your identity through documentation such as government-issued IDs or passports. But, what if you don’t have access to one of these documents, the funds to afford it, or your documentation gets lost during travel? Proving your identity becomes much more difficult.
Identity is simply attaching a unique identifier to an individual which can then be used to track their movements, history, and finances. This can, theoretically, be done on the blockchain. In the future, we think it’s possible that many people will use their unique cryptographically secure key on the blockchain to identify themselves and their history. Instead of government issued ID numbers, you simply have a cryptographic key. No matter where you are in the world, this can be used to identify you and your history.
There are a few organizations that are beginning to work on this issue. There’s the ID2020 Alliance which is working to make digital identity a reality through technology, the Jordanian refugee camp that’s operated entirely on the blockchain, and Civic which is working to create a low cost identity verification option.
These are just a few of the many projects that are being started to manage identity on the blockchain and provide better protection against identity theft. Data security online is currently up to each individual company who stores your data. This ranges from online retailers to banks to social networking sites. The blockchain and your own cryptographic hash could better protect your personal identity than a unique password on each website you visit.
In 2016 alone, 15.4 million U.S. consumers lost a total of $16 billion due to hacking. With digital identities on the blockchain, there’s no more changing passwords, credit cards, and email addresses after a business gets hacked. You’ll no longer have to make the choice between convenience and privacy when blockchain technology replaces ID numbers. Your identity is protected and hack resistant due to the security of cryptography.
This future will take time to realize and receive recognition by the wider market, but the advantages of identity protection on the blockchain will save consumers money, give them more peace of mind, and protect businesses from the loss of consumer respect when breaches do happen.
Access to credit
As identity protection improves with blockchain technology, there’s another potential benefit. Checking someone’s identity and tracking their history on the blockchain becomes easier, more affordable, and more reliable. Identity using a blockchain cryptographic key is easier to check and to prove.
With the ease of identity checks comes the ability to examine someone’s financial history and offer them credit. One of the issues faced by the unbanked is their lack of access to credit because they’ve never held a bank account and are therefore unrecognized by financial institutions.
Someone who is unbanked and deals only in cash may take out loans from other vendors and reliably pay back those loans, but the financial establishment can’t track these transactions. If all transactions are completed on the blockchain with a person’s unique cryptographic key tied to their identity, tracking their financial history isn’t tied to establishment financial services but to the individual person.
The ability to track a person’s financial history makes it easier to assess their creditworthiness, even if they don’t have access to a bank account. Using a decentralized digital ledger, blockchain maintains a record of all the transactions a person makes, creating a digital credit history that can then be used by financial institutions to assess that person’s credit.
One blockchain company that’s already taken the dive into this space is Bloom. This company offers users the ability to create their own cryptographic key that will be tied to their identity. In addition, Bloom will assess their financial behavior and assign them a blockchain credit score. In an interview with Forbes, Bloom co-founder Daniel Maren said, “Bloom’s mission is to build a robust global credit infrastructure [that] reduces fees, increases accessibility to credit, and makes credit scoring fair.”
Using a cryptographic identity tied to the blockchain can make it easier for anyone to access credit by tracking their entire financial history, not just those transactions that are done through establishment financial services and banks.
Our Trusted Lending Circles are another means to support the underbanked community by offering them a secure option to collaboratively save. With Trusted Lending Circles, someone without access to traditional financial services can put together a lending circle with their neighbors and begin saving. They get the safety and efficiency of accumulating funds using cryptocurrency without worrying about storing their cash savings in potentially unsafe locations.
Access to insurance
Blockchain won’t just disrupt how your credit history and credit score are tracked, it might also be able to disrupt and improve the insurance industry. Potential benefits include:Improved insurance fraud detection and protectionMore secure sharing of medical recordsEasier valuation of property for insurance and damage for insurance paymentsMore equal access to insurance products through mobile blockchain technology.
Much of the underbanked population has limited access to insurance, which can leave them even more vulnerable if they find themselves in a health crisis or other emergency. For the underbanked, a natural disaster can signal the loss of their home, wealth, and ability to improve their lives. They’re left with no recourse towards rebuilding their lives because insurance was inaccessible to them.
Blockchain technology has the potential to change this. Between the ability to prove their identity and build a credit history on the blockchain without ever accessing legacy financial services, the underbanked can now have easier access to financial products such as home, life, and health insurance.
Blockchain technology might also have another way of reducing the risks faced by the underbanked population. The blockchain can also create risk-pooling products for collaborative saving and insurance.