Bitcoin’s Impact on Financial Inclusion
Financial inclusion refers to universal access to useful and affordable financial products and services that meet people’s needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way. However, around 1.7 billion adults worldwide remain unbanked without access to basic banking services according to the World Bank.
Bitcoin and other cryptocurrencies have the potential to significantly increase financial inclusion globally by providing an alternative financial system that is open, neutral and accessible to anyone with an internet connection. Here we explore some ways Bitcoin could impact financial inclusion worldwide.
Remittances and Cross-Border Payments
Sending remittances across borders is extremely expensive and inefficient through traditional channels, with fees as high as 10% of the transaction amount. This disproportionately impacts the billions in remittances sent by migrant workers to developing countries each year.
Bitcoin offers a cheaper alternative for cross-border money transfers with fees often less than 1%. This could save migrants billions annually and greatly boost financial inclusion in recipient countries. Startups like BitPesa are already using Bitcoin to facilitate lower cost remittances to Africa.
Access in Developing Markets
Over 1 billion people worldwide live in areas without reliable banking infrastructure. Setting up branches is uneconomical for traditional banks in low income, rural communities.
However, these areas usually have mobile connectivity, allowing Bitcoin to fill this gap. Individuals can generate and store bitcoin addresses on basic phones without bank accounts. Companies like SatoshiPay are enabling micropayments via SMS in remote regions.
Removal of Geographical Barriers
Bitcoin access is not restricted by geographical borders or physical location. Individuals in restrictive economies with capital controls gain a financial alternative beyond the control of their governments.
This promotes financial sovereignty and inclusion for those previously excluded due to their nationality or residence. Venezuela and Argentina have seen increased bitcoin trading as a hedge against inflation and currency controls.
Access for Underbanked Groups
Certain groups like refugees, migrants, the homeless and those with no ID documents face difficulties opening bank accounts due to stringent KYC/AML regulations.
Bitcoin provides a financial lifeline to the underbanked without such barriers. Organizations like BitPesa are piloting refugee cash programs using bitcoin. This restores basic financial agency for marginalized groups.
Microtransactions and Savings
Bitcoin’s divisibility to 8 decimal places allows for micropayments as small as a fraction of a cent. This enables new use cases like pay-as-you-go basic services and pay-per-view/stream monetization models.
It also facilitates regular small value savings that accumulate over time, helping the poor build resilience against financial shocks. Companies are exploring bitcoin-based savings and credit products targeting this underserved segment.
However, Bitcoin also faces challenges to widespread financial inclusion:
- Volatility risks deterring the risk-averse from holding bitcoin as a store of value or unit of account. Stablecoins aim to address this.
- Technology access and digital literacy remain barriers, though smartphones are proliferating rapidly in developing markets.
- Regulatory uncertainty in some countries could stifle bitcoin-based financial services for the poor.
- Fees and transaction delays on the Bitcoin network currently limit micropayments at scale. Layer two solutions are improving this.
While challenges exist, Bitcoin’s open and permissionless nature has great potential to extend financial services to billions currently excluded from the traditional system. As a global digital money, it bypasses many barriers faced by the unbanked.
With further development of user-friendly interfaces, stable value anchors and enabling regulation, Bitcoin and its underlying blockchain technology could significantly boost financial inclusion worldwide – especially among cross-border migrant communities, the rural poor and underbanked groups. This would generate substantial social and economic benefits.