Estimates of the world’s unbanked population range from 1.7 billion to 2.2 billion. Lack of access to banking and financial services has serious and long-term consequences, forcing people to turn to more expensive alternatives to traditional financing, limiting their access to lines of credit and preventing them from raising emergency funds and making important payments on time. Lack of access to finance can also limit people’s ability to invest in the opportunities available to them, forcing them to use non-traditional and often complex forms of finance, such as personal risk credit.
There are many reasons why there are so many unbanked people around the world. Some of the biggest causes of current financial exclusion are high account opening fees, rising money transfer fees, lack of proper identity documentation, limited access to physical banks, and living or working in a market that most still rely on for payment. .
Blockchain, Cryptocurrencies, and Digital Payments Solutions
In developing countries, particularly in Africa, digital payments have gained significant popularity as a secure, fast, reliable and inexpensive way to send and receive money. Powered by efficient and easy-to-use mobile technology, new digital payment solutions can quickly and efficiently reach the unbanked and unbanked, who have long been excluded from the traditional financial system.
Digital payments in Africa have grown 11-fold over the past 10 years, empowering millions of people by breaking down barriers to accessing a wide variety of goods and services. With about two-thirds of adults in sub-Saharan Africa currently unbanked, giving these consumers access to digital financial services could be critical across the continent.
Alongside digital payments, crypto-based payments in Africa have also experienced tremendous growth in recent years, up more than 1,000% since June 2020. By combining the untrustworthy and permissionless nature of blockchain and distributed ledger (DLT) technology that the underlying With mobile banking offerings, we can make our existing cash infrastructure more efficient while reducing costs, increasing security, offering financially inclusive products and services, and simplifying local and international remittances for businesses and consumers.
A key requirement for this is internet access, but with companies like 3air working on fast and affordable large-scale internet connectivity solutions for millions of people across Africa, now is the perfect time for digital adoption in the financial services sector. The 3air network can help people get online and connect to Web3 services, and can even help them embrace new technologies like blockchain and cryptocurrencies that promise permissionless alternatives to today’s bank-centric financial services.
How mobile money and crypto-based transfers work
Mobile Money makes it easy to transfer money between SIM cards on mobile devices. It works with both smartphones and non-smartphones and has been used successfully to reach millions of people in Africa; Currently, about half of all mobile money users in the world are in Africa.
However, with mobile money, payments are still processed through third-party providers. If person A sends money to person B using a particular service, the funds must still be disbursed by person A’s financial institution and then received by person B’s financial institution. Both the institution and the service provider may have their own costs.
DLT can be used to bypass all these intermediaries. Cryptocurrency based payment solutions use smart contracts to automate the management of platform operations. Smart contracts are snippets of computer code that can automatically approve or reject transactions or take other actions depending on whether the scenario or transaction meets certain criteria.
This allows users like Persons A and B to bypass all traditional intermediaries without paying excessive processing fees and instead rely on honest and cost-effective transaction data processing to easily send and receive funds and other types of service benefits. In many cases, these solutions can deliver real-time global payments in seconds – not days – eliminating capital bound in target markets.
Use Cases and Opportunities
DLT-based cryptocurrency payment technology can be used for everything from global remittances and SME payments to payments and treasury flows. In Africa, where financial markets between countries are not only complex but highly competitive, crypto and blockchain technologies can be used in conjunction with the 300+ mobile money schemes currently operating on the continent to open closed systems and to enable access to finance in more advanced use cases. large.
For example, raising funds through Initial Coin Offerings (ICO), raising funds for charities, paying wages to workers, fulfilling sourcing/supply orders, and conducting regional/international transactions using cryptocurrencies and the blockchain-based smart contracts that execute them. For example, if delivery parameters or conditions are not met, employees don’t complete their assignments on time, or fundraising goals are not met, all transactions can easily be canceled—without the overdraft fees, late payments, and interest associated with bank payments in such a scenario.
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As such, Crypto-based solutions offer a powerful alternative to many of today’s options – including mobile and digital solutions – as well as those offered by regional banks and payment processors. These include big players like Western Union (which processes $5 billion worth of funds in Africa annually but can charge up to 15% fees on certain transactions) and emerging fintech startups like PAYDEK, which targets small businesses and freelancers focused.
What is needed now is a better legal, compliance, KYC and AML system that can help expand crypto-based financial services across Africa. Also needed is an internet connection, which companies like 3air are working on in some of Africa’s most populous but underserved markets.
Use cases such as those outlined above offer new opportunities for traditional banking service providers and non-banking institutions to serve underserved customers at scale. As such, we are currently in the midst of a financial revolution where traditional systems and centralized silos are being challenged and crushed by decentralized alternatives, and unbanked, unserved and locked-in end users can finally benefit from these changes. in wake.