Over 7.1 million US households are unbanked — according to a recent survey by FDIC. Meaning no one in the household has a bank account.

Lack of trust among financial institutions and privacy concerns were among the top three reasons why no one from the household had a bank account. About half of the unbanked households cited “Don’t have enough money to meet minimum balance requirements” as a primary reason for being unbanked.

The global numbers are far more devastating.Over 1.4 billion individuals around the world lack access to banking services — as per a report from World Bank. These individuals are often forced to work in unfavorable environments and rely on cash for daily transactions.

Cryptocurrency can solve this.

When the Bitcoin whitepaper was published in 2008 by Satoshi Nakamoto, his primary goal was to get rid of all the intermediaries from financial transactions. He aspired to create a sound system that enables two parties to transact directly without a third party (like a bank).

Let’s understand the unbanked citizens, their challenges, and how Bitcoin can help.

The unbanked and their challenges

Millions of people around the world don’t have access to banking services. These people don’t have a real way to invest money or securely hold their earnings. They also lack access to loans, mortgages, debit/credit cards, and internet banking services. This keeps the poor people poor and makes them financially unstable.

Let’s understand what keeps people unbanked.

Lack of income: According to a survey conducted by
FDIC
, about 48.9% of people were unbanked as they were unable to meet the minimum balance requirements. This means they cannot open a bank account even if they want.

Banks are biased toward minorities, low-income households, and individuals making meager wages. This makes it incredibly difficult to break free from poverty. Because unbanked citizens can neither open a savings account to earn interest nor apply for loans to invest in their education or start a new business.

Banking fees: About a third of the unbanked citizens don’t have a bank account due to high banking fees. From account opening fees to overdraft charges and credit card interest — there are several different ways banks make money from their depositors. These charges are variable and unpredictable. Banks may increase their fees from time to time based on the economy and market conditions.

In the survey conducted by FDIC, 31.3% of unbanked citizens cited the “unpredictability of bank fees” as a reason for not having a bank account. A lot of individuals have little to no knowledge about how banks charge their fees. This also can be a huge barrier to not joining banks. Research conducted by Pew Health Group revealed that a bank’s account disclosure statement had anywhere between 21 to 153 pages on average, which is far from a quick and easy read.

Those with meager wages cannot afford to lose the little they earn. And the unpredictability of bank charges makes it difficult for them to trust giant financial institutions.

Distrust in the banking system: Banks are no longer the safest place to keep our hard-earned money. Time and again, we have seen banks fail due to bad management decisions and poor risk controls. Moreover, cyber attacks on banks, fraud, and corruption make things even worse. In 2016, $81 million were stolen from Bangladesh Bank in a few hours.

We all have heard of the infamous case of Wells Fargo, where the senior management’s behavior led to employees creating two million fictitious customer accounts just to meet sales goals. That’s not all. In 2021, HSBC — a trillion-dollar British bank, was accused of facilitating money laundering by Mexican and Colombian drug cartels.

Such stories spread more fear and distrust among the unbanked — making them less likely to turn to banks for availing financial services.

How can Cryptocurrency help?

It’s evident that banks have no incentives to solve the challenges faced by the unbanked. It’s time that unbanked citizens help themselves by embracing crypto. Virtual currencies like Bitcoin can solve all the existing problems faced by the unbanked. Let’s understand how crypto can help.

No additional charges or minimum balance: Banking charges became a huge barrier for unbanked citizens. With their meager income, they couldn’t afford the myriad of charges banks levy on the depositors. Moreover, the uncertainty of fees and varying account maintenance charges make them wary of banks and other financial institutions.

Crypto, on the other hand, is accessible to everyone. There are no charges or any minimum balance requirements for owning crypto. You can sign up with any
Bitcoin wallet for free and start using it even if your transaction volume is as little as $1. Whether you transact locally or send international payments, you will only pay a nominal network fee, which is a very small chunk of your total payment.

Crypto is for everyone: Anyone and everyone can use crypto. Irrespective of your geographical location or financial status — you can use crypto. All you need is a smartphone and an internet connection to start transacting in crypto. Simply register an account with a crypto payment processor to store, spend, and invest through crypto. No need for a high credit score or to go through strenuous verification processes.

Global accessibility, easy signup, and low entry barriers make crypto an ideal alternative to banks for the unbanked.

Freedom from dictatorship: No one entity can control cryptocurrencies. They can neither be printed at will nor destroyed. Most cryptocurrencies are generated through software that is programmed in a way that there’s only a limited number of coins in existence. Thus, financial institutions, no matter how big, cannot inflate cryptocurrencies.

And because crypto is decentralized, no one can freeze your funds or control how you use them — making it free from a dictatorship of any kind.

Final words

Crypto can empower the unbanked by providing them with the means to be a part of the global economy. Unlike banks, cryptocurrencies are decentralized, have low barriers to entry, and can minimize the cost of transactions significantly. As of now, a lot of countries are already harnessing crypto to their advantage. As more countries embrace crypto, millions of unbanked citizens will be able to access basic financial services — reducing poverty and fueling economic growth.

Source: https://www.finextra.com/blogposting/24496/crypto-helping-the-unbanked-citizens?utm_medium=rssfinextra&utm_source=finextrablogs