How crypto assets can strengthen financial inclusion

How crypto assets can strengthen financial inclusion

Obtaining a transaction account is the first step towards financial inclusion, as it allows individuals to store money and conduct transactions. This account serves as a gateway to other financial services, which is why it’s essential to ensure that everyone worldwide has access to one. Without it, people’s ability to access critical services is severely limited.

What is financial inclusion?

Financial inclusion is about ensuring that both individuals and businesses can access useful and affordable financial products and services that cater to their needs. Such products and services may include transactions, payments, savings, credit and insurance, among others, and they must be delivered sustainably.

According to the WorldBank, financial inclusion is a critical enabler for achieving 7 of the 17 UN Sustainable Development Goals. However, as of 2022, 1.4 billion adults worldwide remain “unbanked”(have no bank account), with a disproportionate number of women and those with low education and income living in rural areas and developing nations.

How can digital assets support new forms of financial inclusion?

Digital assets, like cryptocurrencies, have emerged as a potential solution to the financial inclusion problem. Since cryptocurrencies can be stored digitally and don’t rely on physical banking infrastructure, they have the potential to enable direct access to a new form of finance for everyone – especially the “unbanked”. Here’s why.

  • Permissionless: There are no restrictions to join public blockchains and participation is not controlled by a centralised administrator. All that is required is access to the internet (and there are even solutions being built that work without internet – for instance Manchakura in Africa).
  • Non-physical: Cryptocurrencies can be stored and transferred digitally and do not require physical banking infrastructure. This is key for people who live in remote areas or are otherwise barred from opening a bank account (i.e., due to their gender, ethnicity, religion or political views).
  • Low-cost: Digital assets bring down cost since they remove the need of the “middlemen”, which is especially key for individuals with limited financial resources.

Digital assets support financial inclusion in many ways:

  • Broadening the scope of available services: Besides payments as the obvious use case, digital assets enable access to alternative financial services, such as loans (incl. peer-to-peer lending), savings or insurance.
  • Educating users: By using digital assets, individuals learn about personal finance and investing. Enabling people to use digital assets makes them more financially independent and empowered.
  • More transparency and less corruption: Moreover, through their decentralized and transparent nature, digital assets can help improve financial transparency and reduce corruption.
  • Protecting against debasement/hyperinflation: Hyperinflation and monetary debasement are more prevalent in developing nations and affect poor people the most. Digital assets provide individuals with an alternative to store part of their wealth in completely independent cryptocurrencies (e.g., BTC) or other FIAT currencies (e.g., stablecoins).

The rapid progress of digital assets towards promoting financial inclusion is not just a distant dream but a tangible reality – and it is happening at a fast pace. We might just be too financially privileged to see it. Consider the following examples:

  • The Chainalysis Global Crypto Adoption Index shows that emerging markets are dominating crypto adoption
  • Jan 2023: Strike expands BTC Lightning network-powered remittances to the Philippines, one of the world’s largest remittance markets ($35 billion), making international payments faster and cheaper than the traditional financial systn Nigeria dem
  • Nov 2022: Digital assets adoption is soaring in hyperinflation-plagued Lebanon
  • June 2022: Digital assets usage soars iespite bank ban
  • May 2022: Digital assets adoption spreads in Argentina even as central bank tightens rules

Disclaimer: The information in this publication pertaining to Sygnum Bank AG (“Sygnum”) is for general information purposes only, as per date of publication, and should not be considered exhaustive. This publication does not consider the financial situation of any natural or legal person, nor does it provide any tax, legal or investment advice. This publication does not constitute any advice or recommendation, an offer or invitation by or on behalf of Sygnum to purchase or sell any assets. No elements of precontractual or contractual relationship are intended. While the information is believed to be from accurate and reliable sources, Sygnum makes no representation or warranties, expressed or implied, as to the accuracy of the information. Sygnum expressly disclaims any and all liability that may be based on such information, omissions, or errors thereof. Any statements contained in this publication attributed to a third party represent Sygnum‘s interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. Sygnum reserves the right to amend or replace the information, in part or entirely, at any time, and without any obligation to notify the recipient of such amendment / replacement or to provide the recipient with access to the information. Simultaneously, there is no obligation of Sygnum to inform recipients of information, if before provided information later becomes outdated, inaccurate or obsolete, unless otherwise provided by applicable law. The information provided is not intended for use by or distributed to any individual or legal entity in any jurisdiction or country where such distribution, publication or use would be contrary to the law or regulatory provisions or in which Sygnum does not hold the necessary registration, approval authorisation or license. Except as otherwise provided by Sygnum, it is not allowed to modify, copy, distribute or reproduce, display, license, or otherwise use any content for commercial purposes.

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