A new milestone for the unbanked using blockchain for nonprofit banking
DeFi is giving the banking and savings financial system a run for its money. It offers new ways to interact with your holdings, removing the middleman, making transactions faster, more secure and more anonymous. It also gives investors access to unparalleled returns through staking, yield farming and lending, and all without having to sign a single document or meet a broker face to face.
– Market of values
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In addition, decentralized finance is inclusive. With 1.7 billion unbanked people worldwide, this represents a huge missed opportunity. These same people still engage with cash, but often use niche forms of financial services, which can include check-cashing outlets, payday lenders, and money orders. It is these poorest people who pay the highest fees for their monetary transactions.
Alternative financial services work much like traditional banks, with one big difference: these services come at a higher price. On the other hand, unbanked and underbanked people almost always have cell phones, so the availability of alternative financial services represents a real opportunity for them to transfer money using their phones, even if it does. means they pay more.
Using blockchain to expand inclusiveness
This is where the blockchain stands out. No matter where you are, or who you are, you can use blockchain and more specifically decentralized finance to make payments, invest, borrow money and even lend it. You never need to sign any documents as all transactions are made and authenticated via the blockchain, making this activity tamper-proof and fully automated.
As such, the vision for many blockchain-based DeFi applications and projects is inclusiveness, a way to democratize banking for everyone. One of these companies is hi. It strives to be a catalyst for financial inclusion and aims to serve unbanked and underbanked communities.
We spoke to Salvation’s co-founder, Sean Rach, to learn more about how the industry is addressing the challenge of financial inclusion. Rach is a former Navy Seal who took on considerable crypto custodial responsibility as he was responsible for the communications codes used by the US Navy. He is also the former Marketing Director of Crypto.com.
The concept of DeFi may sound new, but Rach believes it has its roots in the concept of “microfinance”. He opens the discussion by explaining what has changed.
“The remarkable work of Muhammad Yunus in founding the Grammen Bank in 1983 and the concept of microcredit, author of the book“ Banker to the Poor ”in 2003 and awarded the Nobel Peace Prize in 2006, has made an enormous contribution. in the world.
The biggest thing that has changed since he launched his ideas is the rise of telecommunications and, in particular, the smartphone. Even with a basic telephone connection (3G), a banking customer has access to information, services and opportunities that would otherwise have been inaccessible to them. This is, I believe, the root of DeFi.
Assessment of the existing DeFi landscape
Currently, the DeFi Marketplace hosts a variety of applications and platforms, which allow users to save money by staking farming in return for generous returns. These can range from 6% APY and above. This is unprecedented with any savings product on the traditional market. Products on the blockchain are not necessarily tied to traditional money markets, making some assets immune to inflation and often a good way to hedge against risks associated with traditional savings or investments.
Rach explains that: “As Alternative Financial Services (AFS) and even banks seek to make money on behalf of their clients, DeFi proves that users can make money directly using the different protocols. In the absence of a central authority seeking to profit, there are significantly greater opportunities to redistribute the value of blockchain-based financial services to users. “
However, the DeFi landscape as it stands today is not necessarily ready for this challenge. While users have invested over $ 170 billion in DeFi apps over the past two years, it is still a niche segment aimed at a small group of investors.
Size the gap
Rach expands on the current state of affairs, noting that, “DeFi has gained traction so quickly, but there is still a lot of room for development for it to gain popularity. The decentralized nature of DeFi solves several critical issues with the current banking system – with trust being among the most important, but also by making protocols open and community-governed, they become truly accessible. “
He explains the status quo in more detail:
“We have to be honest with ourselves about the status of DeFi. We’re only just starting. Currently, DeFi platforms reach around 3 to 5 million people, a far cry from the estimated two billion people who are unbanked.
DeFi offers a lot of promise with the possibility of providing ways to help these people reliably grow their money over time given their lack of access to the traditional banking system. The potential to earn interest on deposits rather than putting money in a can of coffee or being able to get a loan at competitive rates rather than dealing with loan sharks preying on those who need it most , can be a game-changer for the world.
Does he believe this only applies to emerging markets or also to the unbanked in the developed world?
“When studying the remittance industry (a $ 440 billion industry in 2020), there is often a connection between the two – with people sending money back to their home countries. Both can benefit from it, but the form it takes can be different depending on the need and this is where the right user experience will be key to adoption.
Make DeFi more inclusive
The update on the user experience is an important point for Rach. Poor user experience has been a pervasive problem in crypto from the start, and it goes beyond clunky interfaces and a lack of customer support.
Rach explains, “We have made great strides in crypto over the past few years, but we are still asking too much of users. Navigating wallets and exchanges, high transaction fees, slow block times, the need to pay transaction fees in the native platform token – these are all barriers to adoption and, for example, extension, to financial inclusion.
Rach and his co-founder started hi with the belief that a global, open, instant and low-cost movement of money will create immense economic opportunity. They believe that sending money should be as easy as texting and hi is the result of their efforts to make that vision a reality.
Hi users can hold money including in digital currencies, they can earn a return on deposits at much higher rates than elsewhere, and they can be rewarded for using the native token, called hi dollar. They can also spend with a virtual debit card and convert money at interbank rates. Ultimately, hi aims to provide a complete, open and accessible suite of banking services. However, from the user’s perspective, he can handle all of this from an existing chat app on his phone.
Rach explains: “With 3.8 billion smartphones worldwide and each of them connected to instant messaging, we think it makes sense to skip the download step of the app and integrate immediately members via Telegram and WhatsApp. We also offer a web application (web.hi.com) and will soon be launching our mobile application (for iOS and Android) with graphical user interface.
Overthrow the banking system
According to Rach, products like hi are turning the banking system upside down by “bringing the concept of a credit union / community bank into the digital age.” Our members are our main stakeholders, and never just “users”. The current financial system is broken. Banks charge high fees and make money FROM their members, not FOR them. “
But isn’t borrowing money using decentralized apps inherently riskier than using a bank? Rach believes not.
“Risk, like beauty, is in the eye of the beholder. With the risk of physical money theft, exorbitant loan rates, and the physical threat to repayments, the traditional system is not without its problems. Loans in DeFi currently tend to be secured loans i.e. a loan based on a deposit and therefore less risky for a lender.
The path to 3.8 billion users
So the question as old as cryptocurrency itself – when can we expect mass adoption?
“Even at 5 million today, DeFi is very niche. This is where the opportunity lies for companies like hi, which leverage blockchain and other technologies, not only to offer next-generation financial services, but also to make them available to the 3.8 billion people. of smartphones in the world. Saturation is quite remote and would be found when there are a majority of people enjoying the reduced fees, increased speed, and instant access to funds offered by DeFi (especially on mobile).
Rach concludes: “Thanks to a decreasing dependence on Ethereum, DeFi services are becoming practically tasteless and transparent. Crypto and fiat banking for the masses become a reality as we take the best of both worlds and create the most intuitive user experience. Ultimately, we believe this is the path to true financial inclusion. “
Blockchain makes the impossible possible by offering a new system of interaction with funds that can democratize payments, savings and even offer investments to those who do not currently have access to them. This can give options to those who face unrealistic charges for services that we should all naturally have access to, depending on where they live. Nonprofit banking is a real milestone for blockchain and for the banking industry itself.