PaymentsJournal
SUBSCRIBE
  • Analysts Coverage
  • Truth In Data
  • Podcasts
  • Videos
  • Industry Opinions
  • News
  • Resources
No Result
View All Result
PaymentsJournal
  • Analysts Coverage
  • Truth In Data
  • Podcasts
  • Videos
  • Industry Opinions
  • News
  • Resources
No Result
View All Result
PaymentsJournal
No Result
View All Result

Decentralized Finance: The Illusory Savior of the Underbanked

Sam Klebanov by Sam Klebanov
August 26, 2021
in Analysts Coverage, DeFi
0
Decentralized Finance: The Illusory Savior of the Underbanked

Decentralized Finance: The Illusory Savior of the Underbanked

0
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn

An article in American Banker questions the notion that decentralized finance (Defi) is a boon for the underbanked, a claim that has been widely promoted by industry evangelists. The contention goes as follows: legacy financial institutions have long neglected to serve the needs of low-income individuals and Defi companies are on a mission to democratize financial services by reducing costs and expanding accessibility. While the first part of the statement may be true, Defi’s self-proclaimed role as the savior of the underbanked is dubious.

Decentralized finance is an umbrella term for a host of fintech products that function in a decentralized manner, without the need for an intermediary. The most known example of this is a cryptocurrency, with transactions recorded into a digital ledger called the blockchain, validated by a decentralized network of computers.

The article attempts to debunk this claim by citing the demographics of cryptocurrency users as predominantly upper-middle-class, male and white, with a median income of $111,000. It’s hard to imagine a person of this demographic without a bank account unless they are intentionally off the grid or generating this income from illicit activities. Mercator’s 2021 Buyer Payments Insights survey similarly shows that those with an annual income above $75K are twice as likely to own cryptocurrency than those with earnings below that figure. Furthermore, the article cites research showing that institutions accounted for over 70% of Defi transactions.  

This is wholly unsurprising as trading cryptocurrencies and using other Defi products requires access to a computer and an internet connection, as well as an awareness of the technology. The internet requirement immediately excludes the 23 million Americans that lack access to broadband internet from becoming users of the technology. A deficit of widespread awareness and understanding of defi products makes adoption by the underbanked even more unlikely.

This leads one to assume that the proclamations by the Defi industry of their mission-driven intentions are an attempt at corporate virtue signaling rather than a reflection of their true values. That said, Defi technology does have the potential to democratize financial services if it becomes more user-friendly, and industry players make a true effort to reach wider swaths of consumers. Then perhaps we will see Bitcoin wallets replacing checking accounts and smart legal contracts taking the place of costly legal professionals. Until that happens, cash and prepaid cards can remain the most accessible options that truly serve the needs (if imperfectly) of the un- and underbanked.

Overview by Sam Klebanov, Research Analyst at Mercator Advisory Group

Tags: BlockchainDeFiUnderbanked
0
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn

    Analyst Coverage, Payments Data, and News Delivered Daily

    Sign up for the PaymentsJournal Newsletter to get exclusive insight and data from Mercator Advisory Group analysts and industry professionals.

    Must Reads

    scams

    As Scams Become Omnipresent, New Tools Can Help FIs Fight Back

    March 30, 2023
    item clearing

    As Check Volumes Decrease, Financial Institutions Need to Consider Alternative Clearing Options

    March 29, 2023
    payments friction

    Too Much Payments Friction Can Lead to Customer Chafing

    March 28, 2023
    online fraud

    Understanding the Cost of Online Fraud and How to Prevent It

    March 27, 2023
    live shopping, ebay

    Q&A: eBay Exec on Live Shopping and the Future of Payments

    March 24, 2023
    AI and Biometrics in Regulatory Compliance in Finance

    The Importance of AI and Biometrics in Regulatory Compliance in Finance

    March 23, 2023
    Everyone Benefits from the Real-Time Payment Networks  

    Everyone Benefits from the Real-Time Payment Networks  

    March 22, 2023
    commercial payments

    Optimizing Commercial Payments in the Digital Age

    March 21, 2023

    Linkedin-in Twitter

    Advertise With Us | About Us | Terms of Use | Privacy Policy | Subscribe
    ©2023 PaymentsJournal.com

    • Analysts Coverage
    • Truth In Data
    • Podcasts
    • Videos
    Menu
    • Analysts Coverage
    • Truth In Data
    • Podcasts
    • Videos
    • Industry Opinions
    • Recent News
    • Resources
    Menu
    • Industry Opinions
    • Recent News
    • Resources
    • Analysts Coverage
    • Truth In Data
    • Podcasts
    • Industry Opinions
    • Faster Payments
    • News
    • Jobs
    • Events
    No Result
    View All Result

      Register to download the Ekata eBook