It may be hard to believe, but there are nearly 1.7 billion people without access to a bank account. According to the World Bank's financial inclusion database, the bank accounts remain at a staggering 22% of the world population.
That's at least 1 in every 5 adults.
The US Federal Deposit Insurance Corporation estimates that in 2015, 7% of the US population, about 9 million households, were unbanked.
The causes of unbanked populations tend to vary across regions. In many developing countries there is often little in the way of legal infrastructure for identification and ownership. It's difficult to engage in any kind of transaction without verifiably identifying an individual and what he or she owns. Bank accounts, credit facilities and fund transfers all hinge on accurate identities.
Without identification it is impossible to create credit histories which are necessary for any kind of lending to take place. Without lending and the subsequent creation of wealth through production, the unbanked poor may have no way of getting out of the vicious cycle of poverty, which leaves communities impoverished.
To stand a chance at eradicating poverty and creating an inclusive financial system, banks need to step into such communities and create the infrastructure necessary for financial transformation. However, the cost of doing business and the risks associated with such communities outweigh the possible returns on investment.
It's expensive to have a traditional bank to setup and do due diligence in markets where there are very low levels of financial activity. In the space that is left behind by financial institutions, less than scrupulous elements fill that gap. Intermediaries and excess rates for fund transfers and loan sharks payday loans. All of this feeds back into the cycle of poverty, deeply contributing to the inability of the poor communities to become financially stable, and thus stoking the fires of political instability.
Here is a silver lining though. There is something very easy to use that may help.
For instance, identity can be strongly associated with an individual through biometrics. Humaniq, a blockchain based startup using biometric identity coupled with a cryptocurrency, can create an identifiable bank account. This account can then be used for transactions.
Strong identification is the first piece of the financial inclusivity puzzle. Next comes credit. Services like Bloom are used as a basis for risk assessment and credit scoring. This allows them to gain access to their creditworthiness, which allows them to take advantage of their credit cards. Bloom then tracks a user's credit score over time to verify which identities make safe debtors.
Bibliogroup BABB allows individuals to save, transfer and invest their wealth, thus creating a virtuous cycle of wealth generation.
At this stage, formerly unbanked individuals can reach out to the vast distances of the globe to support and invest in their peers. Small and medium businesses can also benefit from blockchain based funding, even if they are situated on the other side of the planet. Industry heavyweights like Indiegogo have created their own curated ICO funding pages that allow businesses to access capital without the complexity of an ICO campaign of their own.
Blockchain has the potential to become the backbone of over 20% of the world's population. In the process, it can significantly improve financial conditions for the world's unbanked population and tap into vast reserves of frozen human capital.