A significant amount of people don’t participate in banking services, both in the U.S. and worldwide. The “unbanked” are driven to choose expensive alternatives. Cryptocurrencies, specifically stablecoins, and the associated technology infrastructure promises to bring fast and cheap services within reach of those who need it most.
Who Are the Unbanked?
The unbanked, underbanked, or “credit invisible” are those who do not have bank or credit card accounts.
The unbanked do not use any banking services at all, including checking and saving accounts and debit cards. The underbanked are those who’ve used alternative financing options during the previous years, including paycheck cashing services, money orders, and rent-to-own services. The “credit invisible” have no credit history at any of the three national credit bureaus (Experian, TransUnion, or Equifax).
Their reasons for not participating in the banking system include:
- Lack of access to a nearby bank branch.
- Unable to afford the minimum balance fees.
- A distrust of the banking system.
- Unwilling or unable to obtain the necessary government-issued ID.
In the U.S., the nationwide rates may be 7.7% unbanked and 17.9% underbanked. Research has shown that immigrants who have experienced a banking crisis in their countries of origin are significantly less likely to have bank accounts in the U.S. Worldwide, as many as 1.7 billion people do not have access to banking services, according to the World Bank.
Which Services Do Not Cater to the Unbanked?
The unbanked, underbanked, or “credit invisible” miss the advantages of financial services which improve the quality of life for the person, their families, and their communities. For example, loans, mortgages, and credit make it possible to buy a new home or start a business. Banks allow people to deposit Incomes and earn interest. Access to banking leads to better economic development, higher employment rates, and greater self-sufficiency all around.
Generally, banks don’t offer loans or extend credit to the unbanked and underbanked or offset their higher risk with much higher interest rates. These policies drive the economically disadvantaged to much higher-priced services.
The ability to send and receive funds impact the unbanked. In the first world people can pay bills and transfer funds to friends, family, or landlords with a few taps on a mobile phone. The unbanked can’t.
Remittances — the monies sent home by migrant workers — often aren’t accessible be to the recipient, pushing them to money wire services that often charge high fees.
Stablecoins Hold Promise to Help the Unbanked
The infrastructure for cryptocurrencies — the blockchain — can provide near-instant transactions across international borders at a cost of mere pennies.
One adoption issue is liquidity tightness during extreme market load, which makes accessing some cryptocurrencies challenging.
Another issue is the volatile behavior of cryptocurrencies, which make them unsuitable for preserving value. In contrast, stablecoins derive their stability from being linked — or pegged — to fiat money of trusted large governments, typically the U.S. Dollar. Abra supports many different stablecoins, including TrueUSD (TUSD), Tether (USDT), and USD Coin (USDC). (Find more information in the Abra knowledge base article How do I buy cryptocurrency with Abra?)
Stablecoins Provide a Broader Market
While banks are challenged by reaching potential customers in remote parts of the world, the explosive proliferation of smartphones across the developing world provides an avenue for reaching those unbanked. The flexibility of mobile payments with fast and cost-effective transactions is a compelling set of features for bringing newcomers to the fold.
Stablecoin Transactions Are Fast
In contrast to typical bank-to-bank transactions, which take three days in the first world and longer elsewhere, blockchain-based stablecoin transactions are near-instantaneous by comparison, taking seconds or minutes to complete.
Stablecoin Transactions Are Inexpensive
Stablecoin transaction fees are significantly less than payment systems such as bank wire Venmo or PayPal remittance services, and debit/credit cards. Where income is lower, it’s extremely important to save as much as possible. Having access to low cost payment services helps to accomplish this.
Stablecoins promise to bring fast and cheap services within reach of those who need it most, the unbanked and underbanked. Abra supports a variety of stablecoins to provide financial advantage to those who have been left out of the banking services sector.
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