Crypto regulations and building financial inclusion

By Joanna England

April 24, 2023

undefined mins

Caging the beast: there is a rampant debate about the nature of crypto regulation.

As the financial markets become increasingly digitised and regulated, financial inclusion has never been more relevant

According to data from the World Bank, there are an estimated 1.4bn unbanked people worldwide in 2023.

As the use of cash diminishes and digital payments increase, many unbanked people with access to mobile technology have instead opted to explore the offerings provided by cryptocurrency and the DeFi space.

There is limited data on the interest of unbanked individuals in cryptocurrency. However, some reports suggest that digital currencies already play a significant role in financial inclusion for the unbanked, as there’s no requirement to have an active bank account and can be accessed through a mobile phone.

The reasons for this are multifold, with experts citing limited financial literacy, lack of proper documentation, high costs of financial services, lack of trust in financial institutions, and limited financial infrastructure in certain areas. Additionally, marginalised populations may face discrimination or exclusion from the formal financial sector.

The DeFi space – alongside its democratised platforms and numerous currency options – has, therefore, begun to provide an alternative finance space for people disenfranchised with, and unable to participate in, traditional banking markets.

A divided economy

Speaking about the changing market, Sahar Salama, CEO and Founder of the full-service mobile payment platform TPAY MOBILE, notes that increased digitisation of the economy is creating a divide between the technologically savvy and disenfranchised groups. She says this requires appropriate government policy so that everyone can benefit from the new possibilities of the digital world.

“As our society becomes increasingly cashless, some advocacy groups have raised concerns about the inclusion of vulnerable groups in the digital economy.

“While these concerns are warranted and it’s true that not enough is being done to include everyone in the digital economy yet, the solution should be a collaborative one that involves governments, regulators, financial services, and fintech providers all playing an active role, rather than a rejection of the concept of cashlessness.

“For a cashless society to be truly successful, digital payments must be accessible and appealing to everyone.”

New opportunities for financial service providers

Reports suggest that an estimated two-thirds of the world’s unbanked – so around a billion people – use their mobile devices for transactional purposes.

Salama points out that the use of mobile technology can increase access to financial services by reducing barriers such as the need for physical infrastructure and documentation. As a result, mobile financial services have the potential to greatly increase financial inclusion for the unbanked population.

Additionally, cryptocurrency transactions can be quicker and cheaper than traditional banking transactions, making it an attractive option for individuals in developing countries for whom there may be limited access to traditional financial services.

How can fintechs improve cryptocurrency services?

There are several strategies that fintechs can adopt to attract more unbanked individuals to their services. These include:

Leveraging technology: Fintechs can utilise mobile technology and digital platforms to reach unbanked individuals, providing financial services that are accessible, convenient, and secure.

Reducing barriers to entry: Fintechs can lower the costs of financial services and reduce documentation requirements to make it easier for the unbanked to access financial services.

Building trust: Fintechs can work to build trust with unbanked individuals by being transparent about their services and working to address any concerns about security and privacy.

Offering relevant services: Fintechs can offer financial products and services that are tailored to the specific needs of the unbanked, such as remittances, mobile payments, and savings accounts.

Partnering with organisations: Fintechs can partner with nonprofits, governments, and other organisations to expand financial inclusion and reach more unbanked individuals.

Will regulations hinder the unbanked from using crypto?

Though unbanked people use mobile wallets, the uptake of cryptocurrency among this general population is limited, in part due to regulatory and security concerns.

But many industry experts point out that, if regulations are too restrictive, they may prevent unbanked individuals from accessing cryptocurrency services, particularly if they lack the necessary documentation or face difficulties meeting the requirements. On the other hand, if regulations are well-designed and balanced, they can help to increase trust in cryptocurrency services, thus making them more accessible and secure for unbanked individuals.

It is important for policymakers to consider the potential impact of regulations on financial inclusion and to strive for a regulatory framework that supports – rather than hinders – the use of cryptocurrency by unbanked individuals.

Cryptocurrency services could potentially be helpful for unbanked populations in several ways, if accessibility is maintained. For example, the use of cryptocurrency bypasses the need for a traditional bank account.

The DeFi space also has the potential to bring unbanked individuals into the formal financial sector and increase financial inclusion, because it can help them manage their wealth in a more sustainable, flexible manner.

How can fintechs attract more unbanked people?

The issue is a complicated one. Ultimately, DeFi currently enables people from all walks of life to carry out many of the types of transactions that were previously only allowed by traditional banks – they can lend and borrow, buy insurance, trade assets, and earn interest in a seamless manner, without the third-party permissions of a banking entity.

According to a report by Cointelegraph, in its current state of development, DeFi is more likely to offer revolutionary opportunities for people in low-income populations to gain financial freedom and independence.

It concludes: “As such, security must also be continually studied and enhanced, and the issue of scalability addressed.”