As digital currency and fintech companies seek solutions for the world's “underbanked” population, startups are increasingly looking to make use of the established financial infrastructure.
The ‘Underbanked’
Companies involved in the world of digital currency are increasingly seeing customers in the developing world as a strong potential market. Proposals range from low-cost remittance services to innovative mobile payment networks, as they often try to revolutionize how people transact.
Now, however, rather than trying to always turn this sector on its head, a second wave of these startups is looking at ways to work alongside existing financial services while taking advantage of digital currencies.
Their target customers are the world's “underbanked.” In 2013, the World Bank found that around 2.5 billion adults (55% of the world's 4.5 billion people over the age of 15) fall under this “underbanked” category.
These individuals were seen to “lack access to formal financial services, limiting their ability to benefit from economic opportunities, improve their health and education, and raise their income levels,” creating a self-fulfilling cycle that's hard to break out of.
The way in which digital currency startups can make a difference in the space therefore, is by providing the financial services that these people lack. By increasing an individual's ability to send, receive and even invest funds, these financial services can give the user a prospect of a better financial future.
Bitcoins by money order
Bridging the world of digital currencies with these potential users though is a difficult proposition. In the case of crypto exchanges, these users would often need an official identity card, formal bank account and usually a debit or credit card in order to access the service. This is a high barrier to entry.
An emerging alternative however, is to use the financial services that are already popular among the world's underbanked population, such as mobile credits or money transfer services used for remittances.
Cointelegraph spoke to Andrey Vereshchagin, Marketing Director of 247exchange.com on May 6, about the exchange's partnership with the money transfer provider MoneyPolo. The partnership means that individuals can buy and sell digital currencies via money order, removing the need for a formal bank account. When asked what the company hopes to achieve with the move, Vereshchagin explained:
“We plan to attract not only advanced Bitcoin users, but newbies as well, because this system of buying & selling BTC is completely clear and really easy-to-understand. Even having a bank account, credit or debit card isn't necessary. […] It also seems like a perfect solution for buying/selling bitcoins for unbanked users and especially for people from developing countries having less local direct banking options.”
When asked if they had seen an increase in the number of customers the company replied that with its network of money transfer offices, users are able to send and receive money from roughly 400,000 offices across 130 countries.
“In the last few weeks we have had many new customers from Africa, especially South Africa. MoneyPolo also have many partner branches in Africa and we think it's a promising region - Bitcoin conferences are being held there as well. African people have started to invest into Bitcoin. In the last few days we've also had clients from Nigeria, Saudi Arabia, Pakistan. Also - India, it's a large country, but it's not easy to buy and sell cryptocurrencies there because of the specific laws."
The road ahead
With the service already gaining traction, more digital currency startups may now be tempted to follow suite. However, gaining a foothold in this lucrative market by offering an easier solution to the problem of tricky financial regulation can be problematic. The question raised by many observers is whether these innovative solutions can remain viable in the long term or if regulation around established banks will add friction and offset the benefits of digital currencies.
Mandatory Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations make opening accounts with traditional financial services difficult. Some of the early digital currency companies that failed to comply with money transmission regulations have already experiences legal woes.
In late 2014 former BitInstant CEO Charlie Shrem was sentenced to two years in federal prison for running an unlicensed money transmission service. With this in mind, incentive digital currency services to comply with existing regulation could not be clearer as many businesses are even moving their operations abroad in search of more favorable conditions.
Nevertheless, the opportunity to provide access to the world of digital currencies combined with the potential windfall from becoming a viable financial option for billions of people will remain an irresistible prospect for years to come and is probably not a question of if but when.