Financial Inclusion, Blockchain and Cross-Border Payments

Since 2010, I have been hearing about this future technology that will add flexibility, speed and security but was not truly aware of where it would be today. When I first heard about Blockchain Technology, I immediately felt confused and honestly incapable of fully understanding the math and potential that was being explained. Once folks spoke to in terms I could grasp, I was able to come back with ideas and questions that have not stopped. I am a believer, and this is a hill I will happily die upon if I am proven wrong.

Recently I have been looking at the nexus between Financial Inclusion, Cross Border Payments, and the power of Blockchain with the addition of USDC/USDT. I want to scream at times when there is the constant conflation of “blockchain/crypto bad” because of that shiny object that drives some to become blinded by the volatility trading of crypto currencies, or the misunderstanding of the DeFi space. These conversations have now become weapons against what many of us are fighting for – inclusion and making the movement of monies compliant, easy, and accessible.

I can hear folks starting with ‘well you know there isn’t enough guidance, the guidance has us hitting pause, we aren’t sure if that is going to be a part of our road map or because of FTX, we can even entertain the conversation,’ but if we are collectively waiting for Congress or any regulatory body to step up and take a position, we all might as well pack it in and watch as other central banks and payment rails secure the marketplace while we stand around waiting for permission.

The current correspondent bank model is not working or sustainable. We know and understand that this model is what we have and what we have always done, but it is inefficient, and honestly far too slow given the technology we already have in hand. I am no longer able to defend the time between RFQ, acceptance, USD/USDT/USDC sent to fund the FX transaction, and the customer getting their account funded. For the illiquid currencies that have central bank interventions and a longer time frame to move money, I get it and yes, there is a solution for that as well. Should we not be able to fund an account same day or even next day given that we can already look at what other central banks and pay rails are doing outside of the U.S.?

Do we really want financial inclusion? Do we really want to help the unbanked, unhoused, provide access to money movement to everyone without requiring them to have their own tech stack? Then we need to lay that groundwork. Cash isn’t going anywhere, checks aren’t going anywhere, and the bar is not that high to help with effective and efficient tools. I am trying to stand up and be a voice for those that don’t have a seat at the table and to bring equity and inclusion into the payments space.

I can hear some of my mentors right now reminding me to consider my audience and that there are folks out here, not on the sidelines but in the trenches with me even if on their own paths. I love that I am not alone. I am self-aware in knowing that my thoughts are not original, I am not the first person to be screaming out loud asking for help or even consensus. Where are my people at? How can I join you, help you, shout alongside of you? I am here looking for you, so please reach out and together we can make what should have already been in place a reality, and provide the equity and inclusion everyone has a right to.

If you’re still here, I haven’t lost you so welcome to the team! Please see below and if you feel up to it, make comments and let us know how you feel, and what are you doing to be the change you want.

Financial Inclusion and Cross-Border Payments are critical areas within the payments industry and have seen significant developments in recent years, but there are still challenges to overcome.

Here's what we can expect to see and where there is room for improvement:

Expectations for Financial Inclusion:

Digital Financial Services: We can expect to see the continued expansion of digital financial services in underserved and unbanked regions, such as mobile money, digital wallets, and peer-to-peer lending. These services can provide affordable and accessible banking options to those who were previously excluded from the traditional banking system.

Regulatory Innovations: Governments and regulators around the world are recognizing the importance of financial inclusion. We can expect to see more regulatory innovations that promote financial inclusion, such as simplified Know Your Customer (KYC) requirements, digital identity initiatives, and regulatory sandboxes to foster fintech innovation.

Partnerships and Collaborations: Financial institutions, fintech startups, and telecom companies are likely to form more partnerships and collaborations to expand their reach and provide inclusive financial services. These collaborations can bridge the gap between traditional financial institutions and the underserved population.

Financial Education: Initiatives to improve financial literacy and education will become more prevalent. Educating individuals on managing their finances, saving, and making informed decisions is crucial for long-term financial inclusion.

Challenges in Financial Inclusion:
Infrastructure Gaps: In many developing regions, there are still significant infrastructure gaps, including limited access to the internet and reliable electricity. These gaps can hinder the adoption of digital financial services.

Security and Fraud Risks: As digital financial services expand, so do the risks of fraud and cybersecurity threats. Ensuring the security of these services is paramount to maintaining trust.

Accessibility and Affordability: While digital financial services can be more inclusive, they must remain affordable and accessible to the “economically disadvantaged” to allow them to make use of the services. High fees or inadequate accessibility can exclude marginalized populations.

Lack of Awareness: Many people in underserved areas are not aware of the benefits and availability of digital financial services. Raising awareness and providing education is crucial for them to reap the benefits of these services.

Expectations for Cross-Border Payments:
Faster and Cheaper Cross-Border Transfers: We can expect to see continued efforts to make cross-border payments faster, cheaper, and more efficient. Technologies like blockchain and digital currencies can play a significant role in achieving this.

Blockchain and Distributed Ledger Technology (DLT): The adoption of blockchain and DLT in cross-border payments can provide transparency, reduce settlement times, and lower costs. Central bank digital currencies (CBDCs) may also play a role in facilitating cross-border transactions.

Regulatory Harmonization: There is a growing recognition of the need for regulatory harmonization and standardization in cross-border payments. Efforts to streamline regulations and compliance requirements can reduce friction in international transactions.

Challenges in Cross-Border Payments:
Complex Regulatory Environment: The lack of uniform regulations across countries can create compliance challenges for businesses involved in cross-border payments. Harmonizing these regulations is a complex task.

Currency Conversion Costs: Currency conversion can still be costly, especially for smaller transactions. Reducing these costs is essential for affordable cross-border payments.

Infrastructure Compatibility: Legacy payment systems in different countries may not be compatible with each other, leading to delays and added costs in cross-border transactions.

Lack of Transparency: Cross-border payments can lack transparency, with customers often uncertain about the fees and exchange rates applied to their transactions.

In summary, while there have been significant advancements in financial inclusion and cross-border payments, challenges remain. Continued collaboration among stakeholders, regulatory improvements, and technological innovation are essential to address these challenges and ensure that financial services are accessible, affordable, and efficient for everyone, regardless of their location or economic status.