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Emerging Technology for Banking the Unbanked

FinTech and DeFi are creating paths to financial inclusion for people who otherwise would not have access to traditional financial services.

Emerging Technology for Banking the Unbanked


The term “unbanked” refers to those without a bank account or access to financial services. In 2020, there were 1.7 billion unbanked adults around the world. But, a new worldwide industry has sprung up to enfold the unbanked population into the global economy. Financial technology (FinTech) and blockchain-based decentralized finance (DeFi) are active new sectors that address the shortcomings of traditional finance by providing lower costs, quicker transactions, new asset classes, peer-to-peer (P2P) services, the elimination of minimum thresholds, and equitable online access.

The Unbanked Population Numbers in the Billions

The term “unbanked” refers to those without a bank account or access to financial services. Most unbanked individuals only use cash, and many have no insurance, pension, or other safety net that is often associated with having traditional retirement and savings accounts. According to the World Bank, 1.7 billion adults were unbanked in 2020 — down from 2 billion in 2014. With the emergence of the global financial technology (FinTech) industry, this number is trending sharply downward.

While the majority of unbanked individuals lack access to financial infrastructure because of physical distance, lack of online connectivity, or lack of money, there are some people in developed economies who avoid financial services for other reasons. Regardless of individual circumstances, incorporating the unbanked population into the global economy requires solutions outside the limits of traditional finance.

FinTech Strategies for Banking the Unbanked

Financial inclusion — the accessibility and equality of financial services — has already been revolutionized by the internet. The current standard for financial inclusion starts with an online bank account and has expanded to include access to credit and insurance products. FinTech platforms operate outside the bounds of traditional finance and dramatically improve accessibility for the unbanked. Apps like Venmo and Revolut take the place of traditional banks for many users who are drawn in by an online experience, simple user interfaces, and less bureaucracy. Globally, the FinTech market is forecast to reach a value of $124.3 billion USD by the end of 2025, which highlights the popularity of emerging digital products and services.

Within the FinTech industry, entire technology sectors are working to overcome the specific shortcomings of incumbent financial services.

Lending and financing: Projects in the lending and financing subset of FinTech aim to offer more flexible financing terms and better interest rates than traditional banks. By relaxing qualifying criteria, these solutions appeal to those who are less likely to qualify for lending and financing products through conventional banks. For example, the Earnest platform provides student loans at low interest rates and facilitates refinancing of existing loans. With a mandate to lower the barriers of borrowing for everyday people, the AvantCredit platform offers financial products to middle-income consumers or those looking to build their credit. For the unbanked with low-to-no credit, these solutions may offer access to banking services when traditional banks will not.

Payments: Companies operating in the payment segment of FinTech deliver payment transaction solutions that lower costs, bolster convenience, and fast-track settlement times. Platforms like Stripe, Square, Venmo, and TransferWise save consumers money and time. The unbanked inherently benefit by gaining access to solutions that allow them to keep more of their money, while delivering funds faster.

Investment: FinTech investment platforms lower or eliminate minimum thresholds, reduce commission fees, and help consumers meet their financial goals. For instance, Robinhood Financial allows customers to invest in thousands of stocks with as little as $1. The platform also offers unlimited commission-free transactions and even supports trading cryptocurrency.

Companies like Nutmeg offer a completely hands-off investment experience by building and managing investment portfolios for customers. After setting a preferred investment style, customers require only about $100-500 to start investing, depending on the product. For the unbanked, these solutions present lower barriers to entry and require less investment compared to traditional financial services.

DeFi Strategies for Banking the Unbanked

Building on the groundwork of FinTech, decentralized finance (DeFi) may very well be the next movement of financial inclusion. Using blockchain technology, DeFi solutions remove intermediaries and automate transactions using smart contracts. That means financial institutions are removed from the equation in favor of peer-to-peer (P2P) transactions and automation. The resulting trustless transactions are at the core of a diverse range of emerging financial products that increase access to financial services, while sometimes offering new products and services that are unavailable outside of the DeFi ecosystem.

The use of cryptocurrency in DeFi services presents a powerful global solution to banking the unbanked. Even without a bank account, consumers can obtain and store cryptocurrency like BTC and ETH in virtual wallets, send and receive payments from mobile devices, access alternative credit markets, and invest in global asset markets — often without interacting with traditional financial infrastructure at all.

Payments: Blockchain payment networks allow consumers to send and receive money instantly, at a fraction of the cost of traditional banks. For the unbanked — and even for those with traditional bank accounts — these payment solutions are a frictionless, inexpensive method of engaging with the global economy. While blockchain networks like Bitcoin and Ethereum are outstanding options for transferring funds between individuals, apps like BitPay and Circle Pay provide the ability to send funds with only a telephone number or email address.

Lending: Crypto-backed lending allows consumers to access loans denominated in fiat currency or another crypto asset through peer-to-peer transactions with no financial institution involved. DeFi lending projects come in different categories, exhibiting varying degrees of decentralization. On one side of the spectrum are custodian-based platforms such as Celsius and BlockFi. These projects maintain a certain degree of centralized influence over their ecosystems — implementing Know-Your-Customer (KYC) protocols, acting as custodians of financial assets, and facilitating interactions between their platforms’ users. On the other side of the spectrum are self-custodied platforms such as Compound and Aave. These projects use automated protocols to facilitate essentially every element of the loan, from collateral to interest — entirely accessible to practically anyone at any time, without taking custody of users’ funds or requiring KYC procedures.

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