May 22, 2021
As the name suggests, an unbanked is a person who doesn’t own a bank account to save assets. Such people are unable to use the facilities provided by the banks because they find themselves in a no man’s land when it comes to convenience, fund security, and bank schemes.
For the unbanked, it is next to impossible to save and transfer money securely as they don’t have access to formal and safe financial services. When they need urgent money, they usually depend on other informal ways for financial requirements like borrowing from friends and family or random moneylenders. Many people have a bank account but still have limited access to the facilities provided by banks, these people fall under the underbanked category.
In third-world countries, large corporations and banks don’t want to extend loans to the underbanked. Even when they allow, they charge very high-interest rates to balance the risk. For a short span of time, microfinance institutions paved a way for the underbanked to access loans, however, the interest rates being imposed by the institutions have increased substantially with time and became a major concern for the unbanked.
The reasons behind such a huge chunk of the population still staying unbanked are:
– They can’t afford the cost of opening a bank account
– Time needed for the same
– Tedious paperwork involved in the process
– Low-income levels & Financial literacy
– Inability to comply with strict KYC norms
– Suspicions surrounding the traditional banking system
The Finance and Banking industry need two key elements to function smoothly- one is trust and another is the speed. By implementing blockchain technology in the banking sector, the flaws prevailing in the current banking systems can be eliminated. The immutable nature of the blockchain will make the transactions and records safer than before. Along with this, Blockchain will also remove the role of third-party services from the overall picture thus, making the transactions faster.
According to Wikipedia, a Blockchain is a digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly. In simpler terms, Blockchain is a simple chain of blocks that record information.
This information stored in the blockchain database is immutable, tamper-proof, and is distributed publicly on the network. The dominance of blockchain is getting more in the finance sector because of its reliable, unhackable, decentralized nature.
Blockchain will work as a boon for the underbanked because of its fast and easy-to-use process. Let’s have a look at the three ways how blockchain can help the unbanked:
In order to process any loan in a bank, it is mandatory to go through the burdensome process of KYC which requires the submission of different documents for customer verification. Going through this process consumes a lot of time which in turn, leads to disappointed customers.
With Blockchain, there is no need to wait for submitting KYC documents as the process is quick and efficient. Moreover, it also assures zero chance of fraud during the process. This makes it easier for the customers to adopt the system while maintaining high-level security.
As Blockchain is removing the dependency of third-party bodies for transferring money peer-to-peer all over the world, the processing time is drastically reduced. Not everyone in this world may have a bank account but yes, most of people do own a mobile phone. Blockchain technology facilitates crypto payments as a medium for easy fund transfer via mobile phones.
In terms of economy, if we compare this to a non-blockchain world, it requires human involvement in order to function properly thus resulting in financial mismanagement, extra time consumption, etc. With Blockchain, rare human involvement is needed as most of the process is automatic.
The whole system is decentralized which means that it is monitored by millions of users rather than a single centralized authority. Every transaction needs the authorization of multiple parties before execution which makes it difficult for anyone to corrupt the network.
The information stored in a Blockchain is transparent and immutable as it stores the data in a huge distributed digital ledger that is visible to everyone in the stream. For the unbanked people, Blockchain will help to store every transaction made by them as proof for future reference.
The problem of the unbanked people has been ignored by financial institutions so far as the basic needs such as saving money in banks, doing transactions, earning interest, etc were being ignored. Blockchain would be able to reduce the number of unbanked people and help them to access financial services easily. Moreover, Blockchain applications will finally be able to remove the dependency of manpower without affecting the efficiency and transparency of the system that everybody has been waiting for a long time to see in the financial marketplace. Brugu is one of the leading blockchain development companies that developed blockchain solutions for unbanked people.
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