According to the World Bank’s latest statistics, there are currently 2.5 billion people in the world who are unbanked, that is, without access to basic financial services like a bank account. While most of us typically associate the term “unbanked” with “poor,” research by Hernand de Soto, author of The Mystery of Capital, suggests that the unbanked may own as much as $9.3 trillion in property. That’s nearly double the amount of U.S. currency currently circulating.
If the unbanked hold so much value in property, why are financial service providers and institutions unable to service them?
A thought-provoking piece on O’Reilly’s Radar website addressed this very question by pointing out that in developing countries, unlike in industrialized nations, property cannot be easily converted into capital. The reason why there are so many unbanked is due to the fact that, in developing countries, the concept of title, lien, and identity that we take for granted are still new. To use de Soto’s analogy, it is like having a lake without a hydroelectric dam to harness its potential value.
The financial technology (fintech) sector is an industry that has been growing exponentially in recent years. Innovators in this space are devising new and creative solutions that make financial services more affordable and more accessible than ever before.
Prior to the 2008 global economic crisis, the financial industry was best known for being one of the least open to innovation and disruption, however, the rise of fintech has made major changes to payments, business and personal loans, money transfers, investing, asset management, mobile banking, fundraising and even currencies. Fintech is a dynamic market being led by new entrants and the industry is booming with lots of potential to impact the world on both a local and global scale.
Can fintech change the financial status of the unbanked?
Fintech is filling the transactional record gap, creating formal, standard financial records for people where none had previously existed. Every mobile money transfer is documented, including its sender and recipient. Transactions in the blockchain are recorded in its built-in ledger. As more electronic records are created, software can be used to establish ownership and credit ratings for people where it was previously thought impossible. As a disruptive force, fintech can positively impact the developing world.
With over 5 billion people expected to be using mobile phones by 2016, fintech could change the way that we look at property. Instead of relying on traditional paper-based legal documents, the future of property ownership and identity may very well be defined by a clearly defined electronic audit trail of verified transactions.
As people worldwide become more active online, increasingly via their mobile phones, a new way for people to be uniquely identified now exists.
“When we create social media profiles, transact through peer-to-peer marketplaces, and buy goods and services online, we create a digital footprint that can be used to reliably identify us,” said Stephen Ufford, Founder and CEO of Trulioo. “That digital footprint is called cyber ID data (CID).”
With CID and digital transaction records, fintech could bring the world’s unbanked out of poverty and into prosperity. Once the untapped $9.3 trillion enters the global economy, things will look very different for what we now call the developing world.
In what other ways can fintech make our world a better place?