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The Green Sheet Online Edition

June 12, 2023 • Issue 23:06:01

Benefits of crypto for the underbanked 

By Scott Buchanan
Bitcoin Depot

Digital currency can be useful to a wide sector of the population across various financial backgrounds. Whether you like the freedom it gives you, the speed of the transactions, the privacy it affords or something else entirely, digital currency can provide many benefits.

An important group of individuals who can benefit greatly from the easy access digital currency provides is the underbanked.

Who are the underbanked? 

There is an important distinction between the terms “unbanked” and “underbanked.” Individuals who are underbanked do have a household bank account, and they generally rely on nonbank financial services for many of their transactional needs, either by choice or necessity. That means they use services like PayPal, Venmo or CashApp to transfer funds, in many cases transacting entirely outside of their traditional bank account

The unbanked describes a group of people who are not served by a bank or other similar financial institution at all. Some people choose not to use a traditional finance (TradFi) bank, but others may not be able to access one for a variety of reasons including because they do not have enough cash for the initial deposit, or their credit does not allow them to, or another pre-existing factor prevents them from doing so.

According to a recent FDIC survey, about 14.1 percent of households, or 18.7 million people, in the United States are underbanked and therefore rely on something other than a bank account for their financial needs. These people could benefit from a digital currency solution. 

Reasons why someone might be underbanked 

There are a number of reasons why a person might be underbanked, including:

  • Financial barriers include not having enough money to meet the minimum balance requirements or not having the requisite credit qualifications. Some people do not have access to traditional banking services or even the ability to open a bank account at all.
  • Social barriers to traditional banking include language barriers and cultural differences. Some people do not have access to a bank because they are in an area where it may be culturally unacceptable to use a bank, or access to a bank is simply not available.
  • Institutional barriers are one of the most common reasons people are underbanked. These include not having proper identification or being turned away by a bank because of their financial history or other factors.

Benefits of crypto for the underbanked

Using crypto to transact can be an useful option for someone who is underbanked, providing the following benefits:

  • Accessibility: People who live in rural areas or do not live near a bank may not be able to drive to the bank very often. Those without birth certificates or who cannot apply for a passport also will not have any banking services available to them.

    According to CNBC, 1.4 billion people worldwide do not have bank accounts for various reasons. For anyone without a bank account, crypto allows them access to a viable banking alternative so they can still participate in the digital economy.

  • No minimum balance: Unlike many traditional banks, crypto wallets do not have a minimum balance requirement. This removes a typical barrier to TradFi banking. If someone does not have the amount of cash required to open a checking account, they can still create a digital currency wallet.

    Not only that, but many banks will charge a fee if your account dips below the minimum requirement, costing you even more money. This is a huge problem for people of low socioeconomic status, and it could lead to even more financial struggles.

  • Removes human bias: Blockchains cannot discern the underlying identity and characteristics of the individual transacting on the blockchain. Anyone with access to a computer has equal access to use crypto because it does not discriminate. This removes the possibility that someone could be denied traditional banking services based on factors like race, class, gender or religion.
  • Increased financial privacy: Crypto transactions are much more private than traditional banking transactions. While crypto transactions are recorded on a public ledger, the identity of the parties involved is not revealed. This is not the case with TradFi. This increases the financial privacy of anyone using crypto who is concerned about their financial information being tracked or monitored.
  • Access to international markets: While you sit at home in the United States, you can conduct transactions overseas quickly and easily using cryptocurrency, but not with physical currency in your pocket. Crypto allows individuals access to international markets so they can engage in cross-border trade and commerce without the need for a traditional bank.

A valuable resource for the unbanked

Unfortunately, the existing banking system has offered little in the way of help to the unbanked. There are many potential barriers that could prevent the unbanked from even opening up a basic account, including a lack of transparency from traditional financial institutions.

It does not help matters that some unbanked individuals have an inherent distrust of banks, according to the Federal Deposit Insurance Corp. This could leave them financially unstable. However, answers to these concerns and more may lie with crypto, which removes many of the obstacles that hinder the unbanked. With crypto, users have a wide variety of methods available to take control of their finances. end of article

Scott Buchanan serves as the COO of Bitcoin Depot (https://bitcoindepot.com), where he oversees day-to-day operations of the business as well as long-term strategic planning. In his role, Scott applies his long standing passion for solving complex problems and optimizing business processes to maximize results. He brings a strong professional background in accounting and finance, having previously worked as a manager for Acuity Brands and an assurance associate for KPMG. Scott is also a Certified Public Accountant with a master’s degree in accounting from Wake Forest University. Contact him at linkedin.com/in/scott-buchanan-cpa.

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