Financial inclusion is one of the persistent battle cries of governments, including the World Bank. Banking for the unbanked population has always been a challenge for governments because of two things: access to accounts is concentrated on high-income people, and most of the unbanked population is from developing countries. However, cryptocurrencies and blockchain technology may have the answer.

According to a World Bank report, governments and organizations have made great strides toward financial inclusion. The number of individuals without access to bank accounts has steadily declined from 2.5 billion in 2011 to 1.7 billion in 2017 and by 2021, then 1.4 billion in 2021. Still, around 24% of the world's population is unbanked, which complicates the matter because access to accounts is skewed towards the high-income. According to its developers and supporters, blockchain technology may address persistent demands for financial inclusion.

With the help of blockchain technology, individuals can gain access to financial services without relying on the traditional banking infrastructure. In this article, we'll cover the potential of cryptocurrency and blockchain technology to promote financial inclusion, not just as a way to send and receive payments but also to allow individuals to invest and earn along the way.

What is financial inclusion, and why does it matter?

According to the World Bank, financial inclusion means individuals can access useful and affordable financial services and products that address their needs. These financial products and services come in many forms, but the most basic ones include savings, payment gateways, and credit.

According to the World Bank, financial inclusion is an enabler for seven of the 17 Sustainable Development Goals. It's considered a key to reducing extreme poverty and boosting shared prosperity. The ability to transact is a first step towards "broader financial inclusion."

Individuals can enjoy various financial services beyond payments by setting up an account. This account serves as a gateway to various other services, such as savings, insurance, loans, and even investments.

How crypto and blockchain technology help bridge the gap

Crypto and blockchain technology perfectly address this gap in financial inclusion. There are three ways blockchain technology helps bridge the gap in financial inclusion: access, quality, and trust.

Access

The blockchain technology and its native tokens boost access by reducing costs. Affordability is a primary issue for the unbanked in developing countries. In one study, blockchain-powered payments in different jurisdictions boast a transaction fee range from 0 to 1% for cross-border remittances, compared to an average of 2.7 to 3.5% for traditional financial institutions. In addition to cheaper costs, users can also enjoy convenience and accessibility in terms of accessing accounts.

Unlike traditional financial institutions that require plenty of paperwork and long waiting times, applying for an exchange count or setting up a crypto wallet is faster and has fewer requirements. Setting up a Bitcoin or crypto wallet is fast and requires only a few pieces of information, such as your complete name, email address, and a strong password. Most apps require uploading a government-issued ID or taking a selfie, which users can complete in minutes. Sending and receiving Bitcoin and crypto payments is easy, and you can do it anywhere in the world.

High-quality payment solution

Blockchain developers and experts say that blockchain-based payments offer quality financial solutions to users. One reason is that Bitcoin and crypto payments meet local needs and sometimes offer new opportunities for innovative solutions. In Argentina and some countries in Latin America, the unbanked are leveraging stablecoins as a "reliable hedge against inflation" to protect their financial assets.

According to MasterCard, more than one-third of Latin Americans use stablecoins for payments, which is better than the global average of 11%. Quality also extends to faster payments. Since there are a few intermediaries, transactions are simplified and completed in seconds. For many in developing countries, speed is crucial since it requires quick access to their funds for daily and emergency health expenses.

Finally, blockchain-based payments offer interoperable solutions that match individual and business requirements. The blockchain promotes interoperability, unlike traditional financial services, which often do not integrate assets and technologies across platforms. Protocols are in place for all network transactions, allowing interoperability of digital assets and network applications.

Trust

Blockchain-based payments build trust in transactions since they are transparent and boast a more democratized platform. Trust issues exist with traditional financial institutions' services, often due to the implementation of security and privacy features.

Insider fraud in financial services is still a growing concern for many and is the subject of government inquiries. Insiders, or those who work inside banks and other financial institutions, may substantially threaten financial services due to their knowledge and access to customer data and proprietary systems. Also, since they work for these institutions, it's theoretically possible that they can bypass security measures through legitimate means.

However, this type of fraud is reduced in the blockchain due to advanced cryptography and secure consensus protocols. Public blockchains like Bitcoin and Ethereum are designed for transparency and consensus, making it difficult for malicious actors to change network data.

But risks persist for the unbanked

The unbanked can greatly benefit from cryptocurrencies and the blockchains. However, there are still a few issues and challenges that face its users, and the unbanked population should be aware of these before relying on blockchain-based services:

• Volatility: Crypto prices are highly volatile, which can be risky for individuals unfamiliar with these wild price actions. You may suffer significant losses if you're not cautious with your investments. If you want to use crypto for payments or other financial services but don't want the stress that comes with volatility, then you may want to consider stablecoins such as USDT, Binance USD, and USDC.
• Security concerns. Cryptocurrencies are vulnerable to hacking, theft, and other security threats. It's your responsibility to protect your Bitcoin and crypto wallet and ensure the safety of your funds. Always double-check the information, including when sending to a wallet address, since transactions are irreversible. Unlike credit cards, where you can file complaints or report fraudulent activities, the blockchain isn't governed by a single authority that can review, cancel, or return your funds.
• Lack of regulation. The blockchain and cryptocurrency industry remains unregulated, which can pose problems to users, developers, and investors. With little to no regulation, there are no protection and safety nets in place in case of fraud or technical issues.
• Adoption obstacles. Crypto adoption remains low in developing countries, where financial inclusion is most needed. There are plenty of contributory reasons for its low adoption rate, with a lack of knowledge and a limited number of merchants and other users who accept crypto as two primary reasons. However, the good news is that many governments in developing countries, particularly Latin America, are building their efforts to boost adoption and make crypto-related services more mainstream.

Wrapping up

Greater and substantial financial inclusion is possible with cryptocurrency and blockchain technology. Crypto encourages inclusion since its products and services are accessible, safe, secure, and transparent. Setting up an account, completing online payments, and making fund transfers with Bitcoin wallets and crypto exchanges is easy.

Aside from giving users the ability to send and receive funds, cryptocurrency and the blockchain now support other significant financial services, including loans, insurance, and investments. Once you become an informed crypto user, investing, trading, and earning money from blockchain technology is possible.

However, there are risks to using crypto, such as high volatility, security risks and fraud, and lack of regulation. Before setting up your first crypto wallet, it's best to practice due diligence, review its risks, and take the necessary precautions to protect your money.

Based on reports, the crypto adoption rate may still be low, but we expect more widespread adoption of blockchain for financial inclusion.

Owen

I write about Bitcoin and cryptos, the latest news on AI and tech, and follow the latest trends in online gambling, including provably fair games. Educator by profession, with a passion for writing.