Can Fintech and Blockchain Combine Forces to Emancipate the Underbanked?
Previously confined to internet cafes and tech-savvy convenience stores, Bitcoin ATMs are now popping up all over the world. At the time of writing, Bitcoin ATMs can be found in 71 countries, with an estimated 12,360 Bitcoin ATMs installed around the world. Once associated with the dark corners of the web and even terrorism and money laundering, Bitcoin ATMs now serve as a crucial intermediary between the digital payments industry and underbanked communities stuck in the cash economy.
With retail and institutional investors signaling strong support for crypto markets and their supporting exchange and ATM infrastructure, there is a budding movement in the tech sector to harness cryptocurrencies to support marginalized and underbanked communities.
While there’s certainly reason to be suspicious of seemingly noble motivations in the tech sector, restricted access to banking is a deeply concerning issue. Currently, 25% of American households are underbanked or unbanked. Around the world, a staggering 1.7 billion adults are classified as unbanked or underbanked. In developing economies, if a person is lucky enough to secure a bank account, they’re often subject to unreliable branch access, cripplingly interest rates, and high account-keeping fees.
As ‘banking deserts’ grow and an increasing number of African American and Hispanic customers are discriminated against, it’s clear that the traditional banking system has become restrictive, discriminatory, and riddled with accessibility obstacles.
Cryptocurrencies, in particular crypto ATMs, are attempting to challenge this status quo by empowering communities who have restricted access to centralized banking systems. Using the democratizing technology of the blockchain and the accessibility advantages of fintech kiosks, Bitcoin ATM providers like CoinFlip, Cryptospace, and Bitnovo are attempting to eliminate middleman financial bureaucracy and make banking an easy-to-access consumer activity.
CoinFlip, the world’s largest ATM provider, has already installed more than 1,000 crypto ATMs across the US, each of which can support buy/sell transactions for 10 major cryptocurrencies. The company is also fully compliant with federal regulators, including the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Unfortunately, outside of the KYC requirements mandated by federal authorities, US regulation of digital currencies is poorly defined, irregularly enforced, and inundated with antiquated bank-style conditionalities.
It should come as a surprise to no one that protecting consumers and stimulating innovation becomes a much tougher task in the absence of clear and concise federal regulations. Despite years of surging growth in both cryptocurrency markets and digital asset service providers, Washington has continued to drag its feet on introducing regulations that are specific to the blockchain industry. While some bureaucratic lag time is to be expected, the unusually long delays on blockchain regulation are likely related to the enduring stigma towards Bitcoin and its historic association with illicit transactions on the dark web.
Among certain legislative blocs, opposition towards modern regulation of the cryptocurrency industry may also be motivated by growing distrust of big tech companies like Facebook, PayPal and Square, all three of which have publicly backed blockchain as a revolutionary technology for the digital payments industry.
As cryptocurrency services and blockchain-based companies continue to strain against outdated and inflexible legal frameworks, there is an obvious irony in the potential for coherent industry regulation to not only keep illicit dark web entities at bay, but also to safeguard the industry against Silicon Valley’s play for technological monopolization.
What’s more, it’s increasingly clear that without a consistent and well-reasoned regulatory landscape, America will also begin to lose talent to overseas competitors. Ben Weiss, Chief Operating Officer at CoinFlip, addressed the prospect of crypto brain drain in a recent release, saying: “If we don’t act now, we will continue to lose much-needed businesses and jobs to countries that have moved quicker in this sector.”
Weiss encourages regulators to create laws that encourage rapid innovation in the crypto industry, noting that inaction has already harmed the nascent US blockchain sector, explaining: “Because the federal government has yet to provide a clear taxonomy of digital assets, regulatory uncertainty has caused many businesses to leave the United States, taking jobs and innovation with them.”
Weiss spoke out in support of AB-2150, a California state assembly bill which seeks to codify and clarify digital asset taxonomy and foster an innovative business climate. As a member of the Blockchain Advocacy Coalition (BAC), CoinFlip appeared to work behind the scenes in support of AB-2150.
CoinFlip and the BAC’s efforts must have been persuasive, with AB-2150 securing unanimous approval from the California Assembly. Although initially confined to California, the passing of AB-2150 is a promising step in the right direction for the expansion of crypto assets and services to underbanked communities across the US.
In many ways, the increasing utility of digital currencies and blockchain platforms for underbanked communities is symptomatic of a broader shift towards community outreach in the fintech sector. For now, the media’s attention is firmly captured by the innovation boom in the cryptocurrency space. However, outside of the digital currency spotlight, less flashy non-blockchain tools are still being used to great effect to help combat everything from financial illiteracy and credit deprivation to asset marginalization and exclusionary banking practices.
This trend is perfectly encapsulated by companies like Nova Credit, a US-based startup which uses advanced analytics to aggregate global credit bureau data, thereby preserving financial identifiability and democratizing credit access for asylum seekers and transnational migrants. Unfortunately, even as CoinFlip argues against clumsy regulations in the blockchain industry, companies like Nova Credit are being similarly hampered by short-sighted regulatory oversight and opaque cross-border data supervision.
The lesson from both situations is simple: without specific, sensible, and sustainable regulatory reform from government authorities, the potential for blockchain is restricted by poorly laid out regulation.
