The fintech revolution is shaking up the traditional banking system.
By James Caunt · Author at Blockmate.io
nnovative startups are bringing a new dynamism to a sector that had become far too comfortable and complacent, and providing a financial lifeline to the estimated two billion people worldwide who have no access to financial services.
Web3 and cryptocurrencies are playing a huge part in this shift. It’s no coincidence one of the countries with the largest unbanked populations, Vietnam, is also the global leader in cryptocurrency adoption.
In fact, emerging economies feature prominently in the Global Crypto Adoption Index. With worldwide internet access growing rapidly, more people around the world now have access to the tools and knowledge required to take their finances into their own hands.
This is great news for fintechs. A whole new generation of potential customers are on the rise – young, digitally savvy, and hungry to participate in the global economy.
Why crypto?
Let’s look at a few reasons why people in emerging economies are embracing crypto at an astonishingly rapid rate:
It provides financial services to the unbanked: Opening a bank account usually requires information and documents such as personal ID, fixed address, work contract, and more. For many people in emerging economies, particularly those working in the informal sector, these are impossible to obtain. However, anyone with an internet connection can get access to a Web3 wallet and start making transactions immediately. Free access to Decentralized Finance (DeFi) protocols can unlock services and opportunities that were otherwise out of reach, including loans, credit, and affordable money transfers.
Remittances: Speaking of money transfers, remittances are big business in emerging economies. For countries like Lebanon and The Philippines, for example, remittances make up a huge percentage of annual GDP, with millions of people relying on money earned and sent from abroad. A few key players have traditionally had a stranglehold on this industry, taking a high percentage of each remittance payment and adding unnecessary bureaucracy to the process. Crypto promises to drastically reduce the cost of remittances by offering instant and affordable P2P transfers in stablecoins such as USDC.
Protection against inflation: Wait, isn’t one of crypto’s biggest drawbacks its volatility? That’s true, but compared to rampant inflation in countries such as Venezuela, Bitcoin can seem a much safer option. Then there are stablecoins, which are pegged to more reliable currencies such as the US Dollar. People in countries experiencing high inflation are turning to these assets to protect the value of their wages and savings and using them to trade in a more stable global market.
The risks involved
Of course, there are also plenty of potential risks to widespread cryptocurrency adoption at this early stage:
Regulation: There are many unknowns regarding crypto’s impact on local economies. Governments around the world are scrambling to find suitable laws and regulations that allow them to retain some sort of control. These vary widely from country to country, from El Salvador’s full embrace of Bitcoin and its use as a legal tender, to Nigeria’s CBDC experiment and the outright banning of any cryptocurrency use in Egypt. However, the decentralized nature of Web3 makes it difficult to control and laws change frequently and abruptly (China’s sudden banning of Bitcoin trading, for example). Users risk their crypto holdings becoming worthless, or worse, falling on the wrong side of the law.
Lack of crypto infrastructure: What’s the point in owning cryptocurrency if you can’t use it? Most countries, El Salvador excepted, lack the infrastructure necessary for people to use crypto in their everyday lives. This forces people into the black market, using P2P apps to trade with informal third parties who take fees to convert to cash. Governments who are unable or unwilling to create crypto infrastructure stand to lose much-needed tax revenues for things like healthcare, education, and other public services.
Volatility: Investing in cryptocurrency is highly speculative, leading to high price volatility. Users in emerging economies, especially those excluded from traditional financial services, are the least able to afford to take risks with their money. In the case of a sudden crash people might find their investments worth considerably less, compounding the vulnerability and instability of being bankless.
How can fintechs help?
So how can fintechs provide services to the unbanked while staying compliant with regulations in various countries?
The first step is connecting to Web3. This has never been easier thanks to platforms such as Blockmate Link, which allow you to onboard Web3 wallets to your website or app in just a few clicks. They can also ensure that your operations are compliant with a wide range of international compliance laws, including Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT).
There are a range of services in demand for bankless crypto users. You can build apps and offer products such as:
Cheap remittances: Layer 1 blockchains like Solana enable cheap and fast transactions. Users can send stablecoins like USDC instantly for just a fraction of a cent. Harness this technology to build user-friendly remittance apps that streamlines the process and makes it accessible with a simple internet connection.
Crypto infrastructure: In countries that allow commercial crypto transactions, crypto infrastructure is needed. This can include locally compliant apps and platforms that allow transactions via QR-code, commercial crypto management software, physical crypto wallet scanners, and more.
Access to DeFi loans: Bankless users lack access to the type of financial services that we take for granted. Decentralized Finance offers the possibility for microloans that require little collateral, providing new opportunities to do things like start a small business, get access to vital resources such as energy and transport, or simply put food on the table. Fintechs that can find a way to provide these loans with minimum risk, using AI-assisted Web3 data analytics to accurately predict user behavior, will thrive.
Microtransactions: Web3 offers a frictionless way to carry out micropayments. Affordable transactions mean that people offering their services online (artists, bloggers, consultants, etc.) can now connect directly with their customers and receive instant payments for their work. No more monthly subscriptions, credit card signups and fees, and third-parties taking a cut. Fintechs can provide seamless micropayment platforms to online creators and provide them with new opportunities to grow their audience and revenues.
Wrap up
There’s no doubt that emerging economies are embracing Web3 and cryptocurrencies. This provides a huge opportunity for fintechs, who can provide financial services to large unbanked populations.
If you’re ready to take the plunge and tap into these growing markets, make sure that you’re compliant with local and international laws. This is a crucial first step.
Next, identify your niche—remittances, crypto infrastructure, and so on—and offer services that best fit the needs of your target demographic.
Finally, you should also ensure that your services are accessible by mobile. Why? Well, users in countries such as India, Nigeria, and Venezuela, where crypto adoption is high, are far more likely to access the internet via a smartphone than a desktop PC. Mobile devices are cheaper and easier to find, mobile data is more affordable and accessible than Wi-Fi, and battery-powered devices are more reliable in times of power outages. The global trend toward mobile is clear, so you should be looking to go mobile-first.
For better or worse, crypto is already deeply rooted in the lives of millions of people across the world. The fintechs who recognize this and adapt their services accordingly will be at the forefront of global development in the decades to come.