How can virtual currency aid the financially underserved?
Can virtual currency help the financially underserved? According to some estimates more than 2.5 billion people around the world lack access to formal financial services such as checking and savings accounts, and there are many in the virtual currency field who see the new payment medium as a potential answer to that problem.
Ever since bitcoin exploded onto the scene, enthusiasts and businesses alike have suggested many possibilities for the currency from creating bitcoin-based economies to aiding the financially underserved. When it comes to the financially underserved, many in the bitcoin community believe the currency can reach them in ways banks cannot. Virtual Currency Today interviewed Bryne Reese, vice president of product of money transfer company Uphold Inc., to talk about this issue.
VCT: What are some ways bitcoin is aiding the financially underserved?
Reese: The benefit to consumers is still a relatively small one — because the currency is volatile, really only those who have the luxury of financial stability are able to invest in a currency that fluctuates from day to day. When a change in value of 0.5 percent means you can’t afford to pay rent anymore, that is a problem, and one that bitcoin has been unable to solve.
As a technology platform, however, we are seeing digital currency, like bitcoin, impact consumers significantly, as it is enabling new businesses to emerge that can compete with the big-box retail banks and money transmitters of the world. Uphold works with partners and currencies from around the world, which provides us with a very broad view of how people are using digital currency. What we’ve noticed is that bitcoin plays an important role behind the scenes in many of the newer products and solutions that have come to market in the last few years. And more and more companies that have adopted bitcoin as part of their technology stack, are now beginning to shift focus away from a “bitcoin or bust” mentality, and to look from a more customer-driven perspective of “how can bitcoin enable my business to deliver a higher quality product at a lower cost?”
These solutions are ultimately what benefit the financially underserved the most. It is time we move away from products whose core value proposition is, “a wallet even your grandmother can use” and toward end-to-end solutions that solve the fundamental needs we have as people — such as the ability to send cash one earns in the U.S. to a loved one in Mexico, easily, instantly and for free.
VCT: Are most of the bitcoin transactions coming from remittances or from actual purchases in financially underserved areas?
Reese: The vast majority of bitcoin transactions still come from speculators trying to make a quick buck. Overstock reported bitcoin sales account for only 0.02 percent of their total sales, which is down 50 percent from the previous year. This shows just how far we, as an industry, have to go before bitcoin enters the mainstream in any appreciable way. This of course is disheartening to hardcore bitcoin community, but is not surprising when you open yourself up to the reality that bitcoin has little value to the consumer, beyond its underlying ideology. In the consumer space, bitcoin’s greatest value proposition is still to the merchant who stands to save a great deal of money on fees and fraud prevention. But in the world of payments there is an obvious “chicken or the egg problem” that the bitcoin community has failed to crack.
VCT: What are some barriers to mainstream acceptance in developing countries, and how can bitcoin companies navigate those barriers?
Reese: Those who live in countries with modern and reliable economies tend to take for granted a great deal and thus overlook some of the pretty fundamental challenges that exist elsewhere, especially in developing countries. Bitcoin runs on the Internet, which means that a prerequisite for being able to transact in bitcoin is access to a reliable network. The poorest parts of the world don’t even have a reliable source of electricity 24 hours a day, making access to the Internet difficult at best. When those are the kinds of challenges bitcoin faces, it is hard to imagine getting to a point where a debate about the benefits of bitcoin over gold and the U.S. dollar can even be held.
Uphold’s perspective is that the world of money is deeply entrenched in local tradition, governmental policy and even personal identity. Navigating heterogeneity requires a global perspective, removing a “one-size-fits-all” approach common to other global brands like Google and Facebook, and even others in the bitcoin space. This is a perspective that recognizes the legitimacy and essential nature of the smaller solutions that have the insight and ability to deliver value to niche and local markets.
VCT: What are some services bitcoin can give to the financially underserved that banks and other financial institutions are not offering?
Reese: Bitcoin provides two essential and valuable services to people who are financially underserved. First, bitcoin provides an inexpensive way to send money around the world. When combined with solutions that allow one to convert that value into a form that is readily accepted wherever the value is received, you have real utility. Someone once shared with me the anecdote that it is actually cheaper and faster for an American to hand-deliver $50,000 in a briefcase to someone in Australia, then it is to wire the same amount via a bank. Even if that is not literally true, it speaks profoundly to the potential of cloud money and digital currency where sending money is free and instant.
Second, bitcoin provides a place to store value in digital form, outside the purview and jurisdiction of banks. To Americans and to most Europeans, there is little perceived value here — no matter how we may feel about banks or governments, generally speaking we trust them to keep our value safe. But that comfort is not universally held. Many countries throughout the world have a population that lives in tremendous fear of losing access to their bank account, not to mention actually losing the money held in their bank account. In those countries, cloud money offers peace of mind.