Title: Fintech, the Unbanked Problem, and the Emergent Crypto Solution
Over the past decade, the rise of consumer fintech has revolutionized the banking industry, transforming the way people access financial services. With the advent of smartphones and cloud technology, traditional bank branches have become obsolete as many fintech companies operate solely through digital platforms. However, this shift towards automation and scale has created a problem for the unbanked population who do not fit into predefined customer criteria, leaving them without access to essential banking services. This article explores the emerging crypto solution that offers an inclusive alternative for those left behind by traditional financial institutions.
Fintech’s Emphasis on Scale
The app-based banking models of fintech companies are designed for scale and automation, which means they often fail to cater to individuals and businesses that do not fit into predefined customer profiles. Heavy-handed regulations in the financial industry exacerbate this issue, causing a significant number of people to become unbanked. Examples of this problem range from banks refusing to cater to certain types of companies to freezing accounts without providing any explanation.
The limited recourse for affected individuals is through online chat services, which may not offer a satisfactory resolution. Even a prominent figure like Nigel Farage, former head of the UK’s Independence Party, experienced account closure with Coutts Bank, highlighting the plight of the unbanked. While government-mandated legislation could potentially address this issue, banking is not considered a true public service, making such a solution challenging to implement.
Crypto as an Alternative
Crypto assets, enabled by blockchain technology, offer a promising solution to the unbanked problem. With an internet connection, anyone can choose to hold crypto assets natively, free from the risk of having their access blocked. Although onboarding to crypto exchanges still requires Know-Your-Customer (KYC) and Anti-Money Laundering (AML) checks, they are generally less burdensome compared to traditional banking procedures.
Furthermore, people have the option to store their crypto assets in self-custodial wallets, effectively becoming fully bankless. While this approach has its drawbacks, it provides significant liberation for those who have faced challenges with the traditional banking sector. However, maintaining this bankless status in the long term may be uncertain due to potential future legislative changes, as seen with GDPR’s impact on internet browsing experiences.
Coinbase’s Role in Web3 Onboarding
One interesting development to monitor is Coinbase’s Base network, a Layer 2 Ethereum network that aims to onboard users to decentralized applications (DApps) and DeFi protocols. As one of the leading cryptocurrency exchanges, Coinbase’s market position and influence on the Base network could attract a substantial number of users. However, this also brings regulatory responsibilities that may force Coinbase to comply with certain requirements, potentially compromising the decentralization ethos associated with Ethereum.
Crypto’s Inclusive Nature
Despite the barriers that still exist in the crypto ecosystem, it currently represents a more inclusive alternative compared to traditional banking. With cryptocurrencies like Bitcoin and Ethereum offering permissionless and decentralized features, there will always be crypto rails available for those whom the banking industry fails to serve.
While the consumer fintech revolution has transformed the banking industry in many positive ways, it has also left behind a significant unbanked population due to its focus on scale and automation. The emergent crypto solution offers an alternative, enabling anyone with an internet connection to hold crypto assets without the risk of access being blocked. However, future regulatory changes could impact the accessibility and inclusivity of these digital currencies. Despite the current uncertainties, crypto has succeeded in providing the unbanked with a viable financial ecosystem that can be celebrated.