Game Changers 2020 Essay Series: Blockchain for Good

Blockchain for Good: The Unbanked and Financial Inclusion

Chris Larsen, Co-founder and Executive Chair, Ripple

Nearly one third of the world ‘s adult population is unbanked with almost 75 percent living in poverty. Without access to savings and credit, economic mobility is next to impossible leaving the unbanked trapped in a never ending cycle of poverty. Basic services, such as opening a bank account or credit  card and taking out a small loan, can begin to break down economic barriers and open doors to smart financial planning. Financial inclusion is key for reducing poverty, but today’s financial system makes it difficult for the unbanked to access financial services.

Over the past decade, technological advancements, including mobile devices and the Internet, have shown positive results in improving access to financial services, but we still have a long way to go. Challenges such as expensive processing fees, long settlement times, and the lack of verifiable identity, can’t be solved with incremental improvements to the system. We need to reshape the infrastructure from the ground up, building on new technology and creating new business models to solve this global problem.

Blockchain technology has the potential to transform all industries, especially finance and banking. The technology brings in potential opportunities for the financial landscape to be more transparent, efficient, and frictionless. One area that blockchain can have a transformative impact is cross border payments. Last year, recorded remittances reached $528 billion with a projected 10.3% increase to $689 billion in 2019. For many unbanked individuals, remittances are a primary source of income, but cross border payments can be slow and expensive In fact, the transaction costs tend to fall on the shoulders of those receiving the money. Blockchain can enable real time payments and dramatically cut down transaction costs putting the money where it’s needed most: in the hands of the unbanked.

Verifiable identity is another widespread challenge among the unbanked and developing communities. Individuals can’t work with banking institutions without formal identification. For banked individuals, obtaining identification, like a social security card and birth certificate, is low cost or free. However, for the unbanked, these forms of identification are costly and harder to come by. The process is poorly organized and the infrastructure is sparse, which means more travel, time away from work, family, and money.

Formal Identification (or lack thereof) cannot be solved with the current banking system and poses as a huge obstacle for the unbanked.

Using blockchain, we can build a new system and database that issues digital identities. Individuals can start building their credit, open bank accounts, and invest for their families’ financial futures. For example, Kiva, an international nonprofit focused on financial access to help underserved communities, announced the new Kiva Protocol aimed to build a new national digital identification system using distributed ledger technology piloted in Sierra Leone. The system will help ensure that every citizen has secure and complete ownership of their personal data and information. This is an example of how we can rebuild an outdated financial system to one that is more open and inclusive to everyone.

As the industry matures, blockchain technology can be used to solve real world problems on a global scale.

The benefits of financial inclusion are clear – the expansion of financial services to everyone could achieve economic growth, reduce income inequality gap, and help lift households out of poverty. Blockchain technology has enormous potential to foster financial inclusion and help two billion unbanked people become full economic citizens.

July 26, 2019