Crypto Banking: An Intro To Blockchain Projects Aiming To “Bank the Unbanked”

Blockchain for Financial Inclusion

Issue

There are 2.2 billion people in the world without a bank account, or “unbanked.”[1] Traditional banking produces barriers that make it difficult for everyone to have access to an account. These barriers include a lacking of local banking infrastructure in remote areas, an inability to maintain the minimum deposits required for an account, the inability to provide the necessary personal identification documents to become a customer and more.[2] Banks provide many services for customers such as providing security for funds, providing access to credit, and providing interest on funds held.

This post introduces and explores several companies harnessing blockchain technology to provide financial services to the unbanked.

The Wonders of a Smartphone

Of the approximately 2 billion unbanked individuals globally, two-thirds already own a smartphone of some kind.[3] Lower priced smartphones are becoming more prevalent and an increasing number are available for $50 or less. Access to smartphones and their connection to the Internet is a helpful tool for blockchain companies to provide financial services to those without.

Electroneum

Electroneum (ETN) has a unique solution to the unbanked problem. Their team is combining Fintech mobile payments and Cryptocurrency to create an easy-to-use mobile payment solution app, similar to PayPal and Venmo, for developing nations. With both an IOS and Android app available, anyone in the world can accrue cryptocurrency (specifically ETN) by joining the simulated mining experience on the app. By simply running the ETN application, individuals can earn coins. The app also has an easy-to-use wallet function, which does away with the private and public keys concept.

A major issue with most blockchain-based projects is that transactions on the blockchain take too long to be confirmed. To solve this issue, the team created and patented an Instant Payment System (IPS), which allows users to send payments to each other instantly. These transactions happen off ETN’s blockchain and are confirmed on said blockchain minutes later.[4] An analogous scenario is a credit card transaction, although the IPS is significantly faster to process. If a customer pays a vendor with ETN, the vendor can trust that the ETN will be delivered to their account, and can therefore release the merchandise being purchased.

Electroneum has also created an API for their Instant Payment System, allowing any vendor to easily integrate ETN into their existing payment platform without any knowledge of blockchain development. Electroneum previously integrated two very popular shopping cart systems, WooCommerce & Magento, into their IPS, and are developing ETN payment platforms on a host of other websites. This will create a massive marketplace that utilizes ETN as a form of payment.

Electroneum is also KYC/AML compliant, which allows the several Memoranda of Understanding (MOU’s) Electroneum has in place to roll out. The team has a host of partners underway integrating ETN into their systems.

An additional feature offered by Electroneum is their “Gig economy.” The team has created a website/platform where users globally can post any job and allow users from developing nations to complete said job for payment in ETN, similarly to Fiverr.com. Anyone with a smartphone and Internet connection can now participate in the global economy.

Stellar Lumens (XLM)

The Stellar Development Foundation is aiming to bank the unbanked by providing a low-cost, instant, and inclusive global payment network through the Stellar Protocol. The Protocol is designed to function as a bridge between cryptocurrency and traditional centralized financial institutions. Current banks/financial institutions stand to benefit greatly by leveraging Stellar’s network. Some benefits include gaining more customers, managing of micropayments, and decreasing transaction and remittance costs.[5]

In general, Stellar is trying to help the unbanked in several ways: (1) Remittances: using the Stellar platform, you can send money anywhere in the world quicker, easier and for a fraction of a cent. ($.01 to be exact); (2) Microtransactions/micropayments: the cost of making small transactions, right now, can be cost prohibitive (which is why you see things like credit card minimums at some stores). With Stellar, a fee of $.01 is enough to handle 600,000 transactions; (3) Mobile Money Transfers/Transaction: Stellar will allow mobile money platforms to be interoperable so customers can send money to recipients with different providers, (4) Service the Unbanked: Stellar cuts cost so you can bank new customers. [6]

Without diving too deep into the technical aspects of the coin, Stellar is a platform that was designed to facilitate the transfer of funds instantly, anywhere in the world. The following link provides a quick run down of how Stellar operates and what the Stellar Consensus Protocol is. [7]

An example of how Stellar works can be seen from the integration of ICICI Bank into Stellar’s platform. ICICI Bank customers in India, and abroad, can transfer money through a free mobile wallet over Stellar’s platform. Due to the open nature of Stellar’s platform, ICICI Bank customers can transfer money to customers at any other bank on the platform.[8] This agreement offers customers a wider range of product options, such as low cost, near-instant remittance between members on the network. The partnership is beneficial to both parties, as the bank will pay Stellar, a non-profit company, a fee for each additional account opened, and allows the Bank to reach a lower income demographic.

The Stellar Network has a host of companies integrated into their platform and supporting their network. A list of the financial institutions, payment aggregators and technical specialists can be found here: https://www.stellar.org/about/directory

Humaniq

Humaniq (HMQ) is building a banking solution for the unbanked on the Ethereum blockchain. A major issue many unbanked individuals face is that they do not have any type of verifiable identity; the infrastructure to obtain and verify identity is sparse.[9] Humaniq is designed for those who don’t possess identification, with the mobile app utilizing a new concept based on facial recognition for identity management and more.[10] The software is designed to work on the cheapest Android phones to ensure maximum adoptability.

How this project works is slightly complicated. Users need to complete the biometric identification process to set up an account. There is no password or ledger verification needed to set up an account and biometric ID verifies all transactions. Once an account is setup, individuals will receive an initial deposit of HMQ tokens. Completing actions within the app, such as answering questions or watching a video, will allow users to further obtain tokens. The HMQ tokens are used as a medium of exchange on the platform, where users can get paid for tasks by third party services that plug into Humaniq. The platform will also support Bitcoin and Ethereum, if individuals choose to be paid by such or trade in for such. In addition the mobile app enables users to convert their HMQ coins into fiat currency.[11]

The CEO stated that providing free tokens that can be traded for real cash by users is to build the network. “We’re modeling this off of PayPal’s growth model,” where PayPal was offering new users $20 to sign up and then another $20 if they referred a friend who also completed registration.[12] Humaniq’s idea is basically Metcalfe’s Law, in that the value of a network grows disproportionately larger as the size of the network grows. The company has a few partnerships set up already.[13] They also have an Ambassador Program set up where individuals in developing countries can teach others how to use Humaniq to earn cryptocurrency. There is not a lot of info available as of late regarding Humaniq’s further business and development plans.

RIPIO CREDIT NETWORK (RCN)

Ripio’s main objective is to democratize the digital economy in Latin America by offering digital payment alternatives within everyone’s reach in a region where 65% of the population is unbanked. More specifically, Ripio is seeking to implement a global peer-to-peer credit and lending network on the Ethereum blockchain through smart contracts.

To currently receive a loan a borrower needs to go through an intermediate (a bank). This creates many issues; (1) banks do not provide cross-border loans, (2) the unbanked do not have access to any loans, and (3) gathering all information to structure a loan is costly for a bank.[14] By reducing banking brokerage costs, Ripio aims to allow better conditions for both the customer and lender, in addition to creating a credit alternative.

Ripio includes a cosigner, an intermediary agent, to neutralize the lender’s credit risk, and in case of a default, provide an alternative mechanism for managing the debt collection in the borrower’s country of residence. Cosigners are agents that protect the lender from risk as insurance in exchange for a premium. Typically, an intermediary agent is a financial institution. These cosigners also have the ability to predict defaults. Examples of what a cosigner can do in case of default include by borrower include: (1) legal recourse, (2) refinancing debt and (3) reporting borrower(s) to credit bureau.

The following image shows how Ripio works in a nutshell. The borrower makes a credit request from their wallet provider. The wallet provider generates a smart contract to: (i) specify the terms of loan, (ii) receive funds from lenders, and (iii) distribute funds to borrowers. Scoring agents provide a credit score for each borrower. The cosigner acts as a guarantor for borrowers. The credit exchange allows lender’s offer to extend credit to match with a borrower’s credit. Lastly, the lender invests by lending funds via a Credit Exchange. Lenders can choose how much guarantee to be purchased from cosigner (from 0–100%).[15] Borrowers receive a loan in their local currency.

PUNDI X

Pundi X (NPXS) aims to make crypto mainstream by allowing anyone the ability to go into a store and purchase anything with Cryptocurrency; in a similar fashion as with a debit/credit card (with a pin & chip machine). They are accomplishing their goal by providing retailers of all types a new point-of-sale (POS) hardware device free of charge.

Pundi X is initially focusing its efforts on South East Asia, specifically Indonesia, where more than 75% of the population is unbanked and 70% of the population has mobile phones to make transactions. They are providing retailers hundreds of thousands POS devices, which will allow them to accept payment of Cryptocurrencies. Further, Pundi X is enabling the POS devices to be used with a mobile app and a payment card. The mobile app has a built in wallet where users maintain their private/public keys through a password-based system (to simplify use). The smart card can be used with/without the mobile app, and any individual could use the mobile app to charge multiple cards.[16]

Pundi X users can buy Cryptocurrencies in 3 ways: (1) directly using the mobile wallet (app available on google play), (2) users can transfer crypto from the mobile app to cards, and (3) buy through any POS device.

One news of interest is that currently in Indonesia cryptocurrency purchases are banned, but not cryptocurrency trading. Customers can trade cryptocurrency to fiat currency, but using crypto assets as currency is not allowed. Pundi X is distributing the POS terminal with the option of accepting cryptocurrencies disabled, hoping that in the near future, the ban will be revoked.[17] They are also deploying their POS system in other areas such as Hong Kong because of this hurdle. In addition, Pundi X has enormous amount of support behind it. This is shown by the impressive lineup of partnerships that they have, which can be found here https://pundix.com/partnerships/

Other Notable Mentions

Other Notable mentions include OmiseGo (OMG), Algorand (ALGO), Kinesis (KVT), Telcoin (TEL), and Facebook’s Libra Coin. OmiseGo promises to “Unbank the Banked.” Algorand, an up-and-coming cryptocurrency built by a team from MIT, is hoping that their near feeless, infinitely scalable currency will pick up where Bitcoin left off and provide people around the world with an efficient and easy way to transact without banks in the middle. Forked off the Stellar blockchain, Kinesis aims to create a new form of money for the unbanked, one that is backed by gold and silver.[18] Telcoin is a crypto based on the Ethereum blockchain that will be distributed by your national telecom operator and made available to everyone, anytime, and anywhere. According to World Bank there are nearly 5 times as many mobile phones in the world as there are active bank account and Telcoin aims to capitalize on that disparity. [19] Lastly, Libra (Facebook’s new cryptocurrency), acting as a stable coin, is aiming to bank the unbanked as well. While the official launch is not for another year or so, the team is considering many on-ramps to help the unbanked, such as through a mobile approach or by establishing kiosk providers in developing nations.

[1] https://www.bitcoinmarketjournal.com/top-industries-blockchain-will-disrupt/

[2] http://m.bankingexchange.com/news-feed/item/7610-finding-solutions-for-unbanked-consumers

[3] https://www.pymnts.com/news/banking/2018/alternative-credit-scoring-underbanked-unbanked-nova/

[4] https://medium.com/coinmonks/the-electroneum-ecosystem-411b46a1c1b6

[5] https://cryptoslate.com/stellar-lumens/

[6] http://internationalmoneytransfers.org/stellar-lumens-xlm-review/

[7] https://www.abra.com/cryptocurrency/stellar/

[8] https://www.centerforfinancialinclusion.org/icici-bank-and-stellar-using-blockchain-to-reach-the-base-of-the-pyramid-in-india/

[9] https://medium.com/tech-for-social-impact/how-lack-of-identity-is-blocking-financial-inclusion-around-the-world-77a8f10d5a83

[10] https://bitcoinmagazine.com/articles/humaniq-aims-tackle-barriers-economic-inclusion-blockchain-app

[11] https://coinswitch.co/info/humaniq/what-is-humaniq

[12] https://blog.humaniq.co/why-humaniq-should-interest-you-b43cf3caa630

[13] https://medium.com/@cryptocoinrocket/humaniq-what-is-it-534270664474

[14] https://medium.com/ibbc-io/ripio-credit-network-ico-review-3463c9615e7f

[15] https://crushcrypto.com/analysis-of-ripio-credit-network/

[16] https://pundix.com/pdf/PundiX_Whitepaper_EN_Ver.pdf

[17] https://www.btcnn.com/pundi-x-distributes-cryptocurrency-pos-in-indonesia-ignores-government-ban/

[18] https://kinesis.money/documents/translations/kinesis-whitepaper-en.pdf

[19] https://medium.com/@TheDailyCrypto/quick-review-3-cryptos-telcoin-lala-world-and-ins-ecosystems-fc7e07ad0d10

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