A Utrust original on why centralized institutions will never be able and willing to serve all of us
Why We Build is a series. The first chapter is about the relationship between fiat money and debt, and how true ownership of fiat is impossible to prove. You can find it here. If you’d rather watch the short video we made to illustrate this concept, go to our YouTube channel, right here.
The second chapter of the series is about inflation, and why the fiat system needs money to lose value over time to function. It too is already out, and you can find the blog post here, and the video here.
Last but not least, the third part is about inflation, why our governments have fallen in love with it, and why crypto and blockchain were designed to provide you with an alternative. Find it here.
If you’d rather start with this article, however, they are not narratively linked, so go right ahead!
There are more unbanked people than you think
We tend to associate unbanking (even underbanking) to rural areas. Countries in the global south that are quite simply missing the infrastructure to adequately serve their populations. The unbanked and underbanked refer to individuals who do not have access to traditional financial services such as banks, credit unions, or other financial institutions. This can include a lack of access to basic banking services like savings and checking accounts, credit cards, and loans.
This, however, is not the full picture.
The number of people in the western world that quite simply can’t afford to have a bank account are stark. The European Union, one of the richest regions on the planet, has 58 million people without access to a simple bank account. In the US? Almost 6% of the population, or 14 million people. If you widen the net to those who are underbanked (meaning they do have an account, but they still manage to use alternative financial methods), that net widens to 63 million people in the US alone.
Global numbers? The world bank estimates one third of the entire population of the planet is not getting access to the system.
Being unbanked and underbanked can mean a number of different things. It’s not just about a basic bank account. There are a number of traditional financial services such as banks, credit unions, or other financial institutions that fall under this umbrella.
This can include a lack of access to basic banking services like savings and checking accounts, credit cards, and loans. All of these have different consequences and different barriers to entry. While surely a simple lack of access to financial institutions can be a primary cause in many developing countries, where financial institutions are scarce and not easily accessible, there are many other reasons why people are kept away from the system.
Trust is key. Trust in the banking system varies wildly according to where you are in the world and what is available to you at any given time. In many cases, people do not trust banks to keep their money safe or to provide fair and transparent services. Even in the West, where things are quite a bit more stable, a general distrust of banking institutions is quickly becoming more common, as the traditional industry’s participation in numerous crises over the last few decades has become more evident. Only 33% of people now name a bank as their most trusted financial partner, with FinTech institutions coming in at 37%. For Gen Z, that number is significantly higher.
The essential aspect, however, is fees. Banks are notoriously punishing to those of us who have the least, and high fees are also a major reason why many people are unbanked or underbanked. While these fees may mean very little to those fortunate enough to have sufficient funds in their account, almost every bank in the world will crush the poor with a number of successive and cumulative fees that make getting out of poverty almost impossible.
Being underbanked can be even worse than being unbanked.
We wrote an article about this very issue a while back, and we will quote ourselves here:
“They will charge you for using an out-of-network ATM. They will charge you to transfer money. They will charge you even more if you transfer it abroad. They will charge you if you do too much (excessive transaction fees) and if you do too little (inactivity fees). They will charge you for opening an account (account opening fees) and they will charge you for closing it (account closing fees). They will charge you just for having an account, in fact (maintenance fees).”
Credit also plays a part.
Limited access to affordable credit is another reason why so many people are unbanked or underbanked. Without access to credit, people are unable to start businesses, buy homes, or invest in their futures. This limits their financial mobility and security, and can prevent them from achieving financial stability.
Not having full access to the financial system represents a significant challenge to financial stability and security. Addressing this issue will require innovative solutions that increase access to financial services and improve financial literacy, so that everyone has the opportunity to build a secure financial future.
Being unbanked is a huge problem
It’s impossible to overestimate how big of an issue this can be for people’s livelihoods. We have predicated our entire way of life on having access to money, and we have predicated the way we provide almost all services to payments that are made through the banking system in national currencies that don’t really exist outside of it.
Exclusion from the banking system means limited access to financial services, first and foremost: Without a bank account, individuals are unable to access traditional financial services, such as loans and credit. This can limit their ability to start a business, purchase a home, or make major purchases. It also means an almost impossible difficulty in building credit history: A credit history is essential for obtaining loans and other financial products. Without a bank account, it’s almost always certain that individuals won’t be able to build a credit history, which means a number of completely unrelated goods and services will be negated.
This includes essentials like getting most jobs, applying to almost any kind of housing (to rent or to own), accessing higher education, purchasing a car, or signing up for basic utilities, including running water or electricity.
It also leads to increased vulnerability to financial fraud and scams: Unbanked individuals are more vulnerable to financial fraud and scams as they may not have the resources or knowledge to protect themselves from these types of crimes. This includes but is not limited to more reliance on high-cost alternative financial services where you often have to rely on alternative financial services, such as check-cashing stores and payday lenders, which can be more expensive and less secure than traditional banks.
And that’s saying nothing about how difficult it is to save and achieve financial stability.
One of the hardest and yet least discussed issues, however?
Participating in the digital economy.
In today’s digital world, many transactions are conducted online, and digital fiat pretty much only exists within the confines of centralized banking. You could have ten million dollars in gold, banknotes or coins, but without a bank account, it is extremely hard to put them on the Internet.
We are building a better alternative
Crypto and blockchain technology have the potential to address many of the issues faced by the unbanked and underbanked populations.
As our CEO, Sanja Kon, often says, fixing payments is probably the single most important issue we can solve to help the most people the most.
Here’s what we can do that banks can’t:
Access to financial services: Crypto and blockchain can increase access to financial services by providing a decentralized and inclusive platform for financial transactions. People can access crypto wallets and exchanges from anywhere with an internet connection, making it easier for them to access basic financial services such as savings and loans. If you have a smartphone with Internet access, you can own crypto. It really is that simple.
Trust in the financial system: Crypto and blockchain offer a more transparent and secure financial system, as transactions are recorded on a public ledger and secured using cryptography. This can help to increase trust in the financial system, especially among populations that may have had negative experiences with traditional financial institutions.
Lower fees: Crypto and blockchain can help to lower fees associated with financial transactions, as they eliminate the need for intermediaries and can reduce the cost of financial services. This can make financial services more affordable for the unbanked and underbanked populations.
Access to affordable credit: Crypto and blockchain can help to increase access to affordable credit by enabling peer-to-peer lending and other decentralized lending platforms. This can help to provide financial services to those who may not have access to traditional financial institutions.
Financial literacy: Crypto and blockchain can help to improve financial literacy by providing access to educational resources and increasing awareness of the benefits of decentralized financial systems. This is the only way to eliminate the dependency on intermediaries and help everyone become their own bank.
What we are building at Utrust (soon to be xMoney) isn’t meant to stand where banks and traditional institutions stand now. We don’t want, need, or will ever have the power they have over your lives and your finances.
We want to eliminate the need for anyone to hold that power. Whereas once it was necessary for these behemoths to provide their services and help society grow, now we have the technology to do it without them.
If you own a business and you are ready to experience the speed, reliability, and security of crypto payments, here is where you can find all the information you need.
If you don’t but you are ready to embrace true ownership of your financial future, we recommend the Maiar wallet as a starting point.
We hope you enjoyed the article! Follow us on socials for part 5, where we will discuss why the metaverse is the next step for the Internet, and why we can’t have a metaverse without the blockchain.