Your Phone Is Now Your Bank
By: Jason Miles Lorimer
Tags: Unbanked, Nonprofit, Blockchain, Financial Literacy, Bitcoin

Recently, I’ve been seeing a lot of headlines about blockchain technology and cryptocurrency popping up in my news feed.

It’s not just that Bitcoin is on the verge of a split or that competitor currencies like Litecoin and Ripple are soaring in value. The interesting trend is in organizations piloting cryptocurrency as a full banking replacement.

The World Bank estimated more than 1.5 billion people on the planet have no identification documents, as of 2016.

It’s impossible to open a bank account without ID. While some organizations are working to get more citizens banked, others are navigating around the issue altogether and leveraging the emerging cryptocurrency technology to eliminate the need for a bank account altogether.

Humaniq is a blockchain-based startup that awards free cryptocurrency coins to unbanked citizens, giving them access to some mainstream banking services through a smartphone app. You use a biometric login, so a lack of ID is not a problem. Essentially, your phone is now your bank.

Another app in Kenya uses the same idea of the smartphone-bank without cryptocurrency, instead using a micro-finance currency known as M-Pesa. The micro-finance platform allows users to deposit, withdraw and transfer funds and pay merchants using their phones.

There are lots of things about cryptocurrency and the unbanked that seem appealing. On the other hand, there are a lot of untested potential stumbling stones that we haven’t figured out yet. Here are the pros and cons as I see them.

Pros:

Banking could be done from a smartphone or computer.

Purchasing, trading or transacting with cryptocurrency does not require a background check or credit score.

Bitcoin — the largest cryptocurrency on the market — can be purchased in pieces (you can buy or trade a fraction of a Bitcoin), so little investment is required to start using the currency.

Tech-savvy young adults — who make up a significant portion of the unbanked population — are already accustomed to using smartphones in their daily lives.

Cons:

Not many merchants accept cryptocurrency as a form of payment.

Financial illiteracy is still an issue. Even citizens who are financially literate may not understand how cryptocurrency works. Additional education is needed.

The stability of cryptocurrency has not yet been studied in depth. This potentially puts vulnerable populations at risk.

Micro-investments, small business loans and lines of credit are just starting to be explored with cryptocurrency. Access to credit is still a concern.

The use of cryptocurrency to improve access to mainstream financial services is still in its infancy. We need more experimentation, more pilot programs to prove out the concept. The underlying issue of financial illiteracy could derail any progress made in improving access to banking services.

Most people who are financially illiterate don’t know it.

The challenge is not just to offer access to financial education, but to help folks who don’t know they need help. It’s a paradox in line with an intervention for an addict who doesn’t think they have a heroin problem. How can we help folks understand what financial literacy is, why they need it, that they probably don’t already have it, and how to access it?

I’m interested in hearing your experiences with cryptocurrency, and your ideas for implementing pilot programs in your own communities. Feel free to share your ideas in the comments, or hit me up at hello@dndln.org.