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Blockchain and the Unbanked
The Road to Financial Inclusion
Financial Inclusion as a Service
• 2 billion working age adults globally do not use formal financial services.
• Extending access of finance to them is the building block of a better life.
• The benefits go beyond individuals. Greater access to financial services for both individuals and firms may help reduce income inequality and accelerate economic growth.
• Among bank regulators in 143 jurisdictions, a recent survey found, 67 percent have a mandate to promote financial inclusion.
Unbanked
• Financial inclusion, at its most basic level, starts with having a bank account.
• Security + Identity + Financial Services
Financial Convergence- The Last Metre
• Blockchain + Mobile goes beyond the “last mile” to the “last metre”.
• Banks and financial services companies can connect with the unbanked at the edge of wireless.
• At a time when they are cutting back on physical branches due to regulatory and margin pressures.
• Access to Global Capital Markets for the vast majority of the world.
• Social Impact at the Intersection of Fintech
Digitizing Payments
• Shifting payments such as wages or government transfers from cash into accounts can increase the number of adults with an account.
Benefits
• Increases speed of making payments and lowers the cost of disbursing and receiving them.
• It can increase the transparency of payments and thus reduce the likelihood of leakage between the sender and receiver.
• Shifting to digital payments can also provide an important first entry point into the formal financial system, which can lead to significant increases in savings and the substitution of formal for informal saving.
Benefits of digital
• The benefits of moving cash payments into accounts are realized only if sending or receiving payments electronically is at least as easy, affordable, convenient, proximate, and secure as doing so in cash.
• Encouraging those who send or receive domestic remittances only in cash or through over-the-counter transactions to do so through an account.
Mobile Money
The Future of Finance
What is Mobile Money?
• Allows users to store, send, and receive money digitally on their phones.
• Offered primarily by Mobile Telecom operators.• Have licenses to provide basic money transfer
services.• Developed as a direct result of inadequate
payment infrastructures to meet the needs of lower income users.
Consumer Remittances
• Both cross border and domestic need innovation.• In European Union, only 42% used a financial
institution for remittances.• Only 9.3% used a traditional money transfer
operator.• Many still use informal channels: traditional methods
higher costs, slower process.• Global Value of Remittances: $586 billion USD• In 2017: $636 billion
The Future of Finance
• Developed world economies need to find ways to ensure that the everyday financial needs of their citizens are met.
• Starting to look at the developing world for solutions.
• Developing world has leapfrogged the developed world in some ways.
Opportunities for expanding financial inclusion among the unbanked
• Globally, 38 percent of adults remain unbanked. Yet among the survey respondents who do not have an account, only 4 percent said that the only reason for not having one is that they do not need one.
Reasons for not having an account: Barriers to entry
• Identity• Regulations• No Banks• Cash instead of digital payments• High costs and fees
Opportunities
• Digitizing wages and government transfers is an obvious way of rapidly expanding financial inclusion because the decision of a single actor—such as the government or a large private sector employer—can affect many recipients.
• The private sector could also make a big contribution by shifting wage payments from cash into accounts.
• Payments for the sale of agricultural products offer another opportunity for increasing account ownership among the unbanked
5 ways universal financial access can help people build a better life
• People could save more securely and conveniently. • Poor people could more easily and safely receive
government benefits. • Entrepreneurs could get access to the financial
services they need to build small businesses, and exposure to new markets.
• Inexperienced customers can be more empowered to use formal financial services.
• People in remote areas could tap into financial and other services with just a mobile phone.
Blockchains
What is a blockchain network?
• A secure, low cost payment rail for moving assets peer to peer, over the internet.
Features of Blockchain Network
• Peer to peer: transfer assets directly between the parties who control the assets.
• No bitcoin currency: networks are built for specific market and can issue & transfer any asset.
• No mining: transactions are ordered by trusted parties that form a “federation”.
• Fast: confirmation in seconds• Scalable: 1000s/sec
Blockchains and Financial Inclusion
• According to Santander, their analysis suggests that distributed ledger technology could reduce banks’ infrastructure costs attributable to cross-border payments, securities trading and regulatory compliance by between $15-20 billion per annum by 2022.
Why is this important?
• Banks are going branchless but want to reach the last edge of wireless.
• A massive customer base for banks via mobile.• Cuts operational costs but allows “reach”.• International payments remain slow and expensive and
significant savings can be made by banks and end-users bypassing existing international payment networks.
• Distributed ledgers support “smart transactions” .• Frictionless saving and investment.
Why Blockchains?• Increased financial inclusion in emerging markets, as financial services on the
blockchain gain critical mass.• Disintermediation of financial institutions, as new services and value exchanges are
created directly on the blockchain.• An explosion in tradable assets, as all kinds of value exchange can be hosted on the
blockchain.• Better property records in emerging markets, and the ability to make everything a
tradable asset.• Contacts and legal services increasingly tied to code linked to the blockchain, to be
used as unbreakable escrow or programmatically designed smart contracts.• Increased transparency, as the blockchain is essentially a global ledger storing all
transactions.
Why Blockchains?
• Eliminating replication and duplication over multiple databases.
• Very fast to instant settlement T-0.• Will allow the most efficient capital use in the
history of banking and for banking clients. Lowers the amount of capital required.
• “Just in Time” cash• Integration between banks: interoperatibility• Lowers costs and fees.
Why Blockchains?
• Bye Bye Middleman!• This is huge for Third World/ Unbanked money
transfer, banking & transactions.• A Hedge against political instability.• Storing transactions in one automatically shared,
tamper-proof database could eliminate the need for complicated procedures and clearinghouses now used to make sure banks have their records in sync, saving time and money and reducing the risk of error.
1 of 6 MegaTrends
• The sharing economy and distributed trust The internet is driving a shift towards networks and platform-based social and economic models. Assets can be shared, creating not just new efficiencies but also whole new business models and opportunities for social selforganization. The blockchain, an emerging technology, replaces the need for third-party institutions to provide trust for financial, contract and voting activities.
• Expected Tipping Point: 2027
Governments and the Blockchain
• Central Banks and Monetary Policy• Corruption• Real-time Taxation• Role of Government• Land, titles, deeds, financial & budget records.• Sweden
Mobile is Eating the World
Conclusions
• Mobile payments• Mobile Money• Mom & Pop stores• Customize on a needs basis
