Bank the unbanked has long been a rallying cry for cryptocurrency and decentralized finance (DeFi) platforms. The central concept of decentralizing control over financial instruments is to give people more control over their money and more access to different ways of using that money.
Two common questions come up around this: who are the unbanked, and what is DeFi going to do to help them?
Understanding the unbanked
Before you can help the unbanked, underbanked, and otherwise financially excluded people of the world, you have to understand who they are. This is a diverse group of people, all of whom are underserved by traditional financial institutions for various reasons. The unbanked include people in developing nations, people in rural areas, people in disadvantaged urban neighborhoods, people working in shadow economies, people who have willingly chosen to stop working with banks, refugees, illegal immigrants, people with disabilities, and more.
What pretty much all of these people have in common is that traditional banks have decided they are not worth working with. Banks have chosen to either not open branches near them, or even to close existing branches (in the case of urban areas). They may have had their accounts closed due to insufficient funds. They may have been denied banking services because of low income or lack of a permanent address. They may be unable to safely bank due to their legal status in their country of residence.
What is DeFi doing?
Although most DeFi projects don’t yet have the scale or the stability to really serve the needs of the unbanked (many of whom have limited funds which they can’t risk to the volatility of the crypto market), it does aim to ultimately make the financial world more fair and accessible.
Accessibility comes down to two factors: people have to be able to reach the financial market, and they have to be allowed in. Because DeFi exists fully in the digital world, it doesn’t require people to make their way to a physical bank branch. Anyone with a smartphone and a data plan or WiFi can access these dapps. And most DeFi platforms make it easy to sign up and have a low barrier to entry, so being of modest means does not bar people from engaging with the decentralized economy. What is DeFi, but another way to take power away from the few and put it in the hands of the many?
Why does this matter?
Income inequality is a growing problem in the world, and being unbanked only makes it worse. While DeFi alone won’t solve the problem (the world also needs to address issues such as wage stagnation and exploitation of the labor force, among other concerns), it can at least make financial instruments more accessible to more people.
As we explored in our DeFi guide, when people do not have access to good financial instruments, they have to rely on options that are less-than-ideal, such as predatory “payday loan” and check cashing agencies, inconvenient prepaid debit cards, and cash payments. Without bank services, they cannot build a credit history, which makes it difficult to secure housing, among other challenges.
Our current financial system is leaving vast swathes of people either underserved or completely unserved. It’s easy to get underwhelmed at the size of the problem and wonder what is DeFi even capable of in the face of centuries of institutional exclusion, but DeFi has big plans and dedicated people behind it.