This article is an updated version of a thought piece I wrote for the Entrepreneurship without Borders course^[1] at The Massachusetts Institute of Technology (MIT) circa November 2016. The topic of the global unbanked^[2] continues to fascinate me, alongside the largely untapped potential of blockchain technology to rethink and reboot the global financial system.

During my MBA studies at MIT, I read several papers focused on NASDAQ’s use of blockchain technology to revolutionise settlements and trading^[3],[4] via their Linq product, that encouraged government leaders and companies to explore the technology to help solve their challenges.  While I applaud their efforts to increase awareness and engagement with blockchain technology, these solutions are weak use cases for the blockchain and a far cry from the impact envisioned by its early pioneers.

The use of the blockchain by large institutions and governments to reduce operating costs via private networks, for example, shows that banks do not grasp the full potential of blockchain technology today, or are finding it hard to implement on a mass consumer level, or possibly both.  As one recent Financial Times article^[5] notes, “tighter regulation, new competition from technology companies and the low central bank interest rates […] have forced the banking sector to look seriously at reducing costs wherever they can.”  Paul McMeekin of CFO Magazine is even more direct: “Public blockchain technologies do not offer the scale and speed needed to achieve mass adoption for high-volume use cases.  However, a private, permissioned-based network built on blockchain technology can provide tremendous value to the payments industry.”

Given MIT’s thoughts and concerns about inequalities in the developing world and the global unbanked, I would like to refocus attention on these far-reaching issues and consider how the blockchain represents a more compelling use case for providing access to banking services for billions of the world’s inhabitants.

The World Bank reports^[6] that two billion people do not have access to financial services.  Public ledgers that require 5-10 seconds to complete a transaction (too long for most mature consumers in the developed world) present no real-time issues for a population that has no viable alternative, and there’s a huge potential to capture this market.  While mobile money accounts have driven financial inclusion in recent years, especially in sub-Saharan Africa – where 12% of adults (64 million people) now have such accounts, 45% of them exclusively so – the World Bank notes that “there are big opportunities to expand financial inclusion, particularly among women and the poor.”

The unbanked is not a problem confined to the world’s adult population either.  UNICEF reports^[7] that approximately one in three children born in the world is not documented, with the lowest birth registration records in countries such as Somalia (3% of births documented), Liberia (4%), Ethiopia (7%), and Zambia (14%).  Several Asian countries also make the list including Pakistan (27%), a country with an economy ranked as the 25th largest in the world^[8].  In 2015 there were also nearly 100 million people who were forcibly displaced, stateless or refugees, according to the United Nations^[9], and that number has likely not decreased since then.

If global banks could envisage and implement a blockchain-enabled technology to address the lack of identities – thus making access to basic bank products both cost-effective and enforceable – the seeds would be sown for an explosion in global economic activity and the rebalancing of income inequality in the developing world.  Needless to say, this would also drive the need for increasingly more sophisticated financial services in coming years, a carrot for a global banking system that is genuinely starved of expansion opportunities in the developed world.

Blockchain platform BanQu^[10], for example, has helped displaced people in some of the world’s poorest countries create economic identities.  Its mission clearly articulates the company’s desire to put the small consumer back on the map, using a collation of e.g. key physical characteristics and biometrics, personal / commercial recommendations, and other public profile information, uploaded to a secure ledger that serves as the ‘shared truth’ identity of that person.  Taken one step further, an identifiable person can then use their identity to apply for bank accounts, loans and other credit facilities, and banks can rely on the security of a blockchain ledger to verify credit scores and satisfy ‘Know Your Customer’ regulations and the like.

Ideas like these are required in order for the world’s unbanked and subprime population to be included and fairly treated in the global economy, and such inclusion can only come from a fundamental shake-up of the banking sector beyond its current imagination. There are positives signs, however. The World Bank Report also notes that “the number of people worldwide having an account grew by 700 million between 2011 and 2014 […] Three years ago, 2.5 billion adults were unbanked. Today, 2 billion adults remain without an account”.

In conclusion, there is a far more impactful use of blockchain technology to drive economic equality in the developing world, with a higher willingness to accept what developed world consumers regard as technical imperfection and a proven track record in mass-scale adoption of current blockchain-enabled applications.  This situation is unlikely to be implemented in the developed world for some time.  According to the World Economic Forum’s recent white paper^[11]: “The most impactful DLT applications will require deep collaboration between incumbents, innovators and regulators, adding complexity and delaying implementation.”

I look forward to the opportunity to be a part of that change!

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[1] Also known as Implications of Blockchain Technology for Economic and Financial Development

[2] Roughly 2.5 billion adults in the world do not have access to banks, which means somewhere in the order of 5 billion people belong to households that are cut off from the financial system, The Age of Cryptocurrency, Paul Vigna and Michael J. Casey, First Edition (January 2016)

[3] https://ir.nasdaq.com/news-releases/news-release-details/nasdaq-linq-enables-first-ever-private-securities-issuance

[4] https://digital.hbs.edu/platform-rctom/submission/the-disruptor-disrupted-nasdaq-wrestles-with-blockchain/

[5] https://www.ft.com/content/0288caea-7382-11e6-bf48-b372cdb1043a

[6] http://www.worldbank.org/en/programs/globalfindex/overview

[7] https://www.unicefusa.org/press/releases/unicef-1-3-children-under-five-do-not-officially-exist/8339

[8] http://www.tradingeconomics.com/pakistan/gdp-growth

[9] http://www.unhcr.org/en-us/figures-at-a-glance.html

[10] “Our customers can build their future with this 360-degree economic profile that is device, language, and currency agnostic”, BanQu homepage http://www.banquapp.com, October 18th, 2016

[11] World Economic Forum, The Future of Financial Infrastructure, August 2016, http://www3.weforum.org/docs/WEF_The_future_of_financial_infrastructure.pdf