Will blockchain technology enhance global financial inclusion?
Can blockchain accelerate financial inclusion? This is a question that has welcomed very many debates as the world seeks to become more inclusive. Although most people know blockchain for its role in maintaining secure and decentralized records of transactions in the crypto industry, its use is not limited to this sector only. Recently, more industries and governments have been opening up to this technology, especially because it makes data immutable; that is, data can’t be altered, a highly sought-after characteristic in our contemporary world.
Thanks to the creation of crypto in 2009, the use of blockchain has continued to increase. And it’s noteworthy to mention that since the crypto industry keeps evolving, keeping a close watch on changing trends can be very helpful. For instance, you may want to regularly monitor the Ethereum price chart to ensure you are up to date with changing market dynamics. If you are a tech-savvy enthusiast wondering how this blockchain technology can be applied beyond its use in crypto, this article is just right for you.
The growing need for financial inclusion
Financial inclusion is more than a catchphrase – it’s become a critical need in a world where, according to a 2022 World Bank report, 1.4 billion individuals remain unbanked. The need for financial inclusion is even more apparent in countries like India, where the financial inclusion index was only 60.1% as of the 2023 fiscal year.
While remaining unbanked is part of the discussion, financial inclusion goes beyond merely having a bank account to ensuring individuals have full access to a full suite of tools for managing their lives effectively. This is especially important for developing economies as the World Bank suggested that it could greatly help them lower extreme poverty and encourage shared prosperity.
India, for instance, ranks among the top countries where most individuals own a cryptocurrency. As of late 2023, there were more than 100 million owners already signalling a growing shift towards inclusive financial ecosystems. To drive this inclusion even further, the government has supported other initiatives like extending high-speed internet to rural areas, which will help improve access to financial services through the digital economy.
The role of fintech companies
The need for real-time and cheap cross-border transactions has fueled a significant transition in the global financial landscape. A recent study actually revealed that financial companies spent up to $552 million on blockchain projects worldwide. In another place, PWC stated that 77% of fintech companies intended to integrate the technology into their operations.
Did you know that as of 2023, the fintech sector accounted for about 2% of the international financial services revenue, with the expectation that the figure would grow to 25% by 2030? These growing statistics point to evolving dynamics that are set to benefit blockchain technology even more.
Why are fintech companies turning to blockchain?
According to Migration Data Portal, global remittances amounted to $857 billion in 2023 and could increase by 3% in 2024. When done traditionally, these remittances can be a hassle. However, with blockchain, it’s different; users can take advantage of peer-to-peer transactions, which eliminates the need for intermediaries. Plus, blockchain’s decentralized nature ensures there’s no delay in online payments.
Imagine the pain of spending up to 6.24% of your transferred funds just because you are transacting with someone who is in a far country. Countries like India and Turkey have begun adopting stablecoins as an answer to the growing need for near-instant payments. As a result, the market capitalization for these coins as of September 2024 is $170.98 billion.
Mostly in developing countries, lacking proper identification is a critical hindrance to financial inclusion. Millions of individuals are unable to access financial services because they don’t have formal IDs. Thanks to blockchain, you can have secure and unforgeable digital entities without necessarily having a formal ID. uPort and Civic, among many other platforms, are already taking advantage of this technology.
Countries with CBDCs
As countries seek to build more inclusive financial landscapes, discussions about CBDCs have continued to soar. A central bank digital currency (CBDC) is basically digital money issued by a central bank and built on blockchain technology. Just recently in June this year, Reuters published an article stating that about 130 countries were exploring digital currencies.
The research, which was conducted by a US-based Atlantic Council think tank, revealed that all the G20 countries except Argentina were either in advanced stages, piloting or launching the currencies. In another place, the IMF suggested that financial inclusion was one of the top three reasons why 60% of emerging and low-income countries were turning to CBDCs.
Transacting with traditional banks can be somewhat expensive for low-income households. The remaining option they have is cash payments, which can sideline them from the formal economy. CBDCs come in handy in such instances.
Final words
The world seems to be evolving into a more inclusive society where almost everyone will have equal access to basic services. This presents good grounds for the further spread of blockchain technology. Who knows? Maybe as we seek to have more inclusive financial landscapes, more sectors and governments will turn to this distributed ledger technology to stay relevant.