For the 2.5 billion people around the world who do not have access to the formal banking system, making payments and transferring money is often costly and time-consuming Now technology advocates believe they have a solution: virtual (or ‘crypto’) currencies.

It is argued that a money-transfer system built on secure, paperless, independent currencies will do for banking what the internet has done for communications. Money whizzing from smartphone to smartphone at the touch of a button for little or no fee.

The demand among the world’s unbanked is there, insists Jan Skoyles, chief executive of The Real Asset Company, an online gold-trading platform. It’s just that the cost of extending traditional banking infrastructure to poor and often remote areas stops most conventional banks tapping it.

“No matter how little you earn, you still have a need to bank and transfer money”, she argues. “It’s just about getting the right infrastructure in place to allow people to do that.”

From unbanked to crypto-banker

Remittances mark perhaps the most obvious and immediate market opportunity. Convert the estimated $436bn that will be remitted this year into crypto payments and most of the exchange rate charges and other transfer fees disappear.

“Normally, people in emerging markets have to pay 20% or 30% to send money home. Now they have a technology that is like email for money. They are pinging money wherever they want for extremely low to no fees”, says Eric Benz, director at the UK Digital Currency Association.

“This way the entire Western Union/MoneyGram money transfer model is completely removed. You’re talking about a hundreds and hundreds of billions of dollars a year industry that is just going to be completely disrupted”, he says.

Charities operating in developing countries could be early beneficiaries, with virtual currency presenting a means of both paying foreign aid workers as well as receiving small donations. Digital currencies avoid the risk of fraud or corruption in such transactions too, says Claire Cockerton, chief executive of trade association Innovate Finance.

Small businesses could benefit too, Cockerton adds. Picture a rural retailer in a poor country, she says: “[It] can grow a global business without having to rely on an infrastructure that has been paid for, approved and supported by the banking system and government.”

The South Africa-based iceCUBED Exchange offers an early-stage taster of just such an approach. The start-up exchange offers a system for Bitcoin and Litecoin trading, with a particular focus on facilitating the international buying and selling of commodities.

“If you’ve got a guy in China who wants to buy coal from somebody in Zimbabwe in order for him to do that transaction there are like ten people involved” says Gareth Grobler, IceCUBED’s founder. “You could pretty much cut all of them out at a fraction of the cost [with this system].”

Real hurdles for virtual currencies

The promises are big, but so too are the challenges. Grobler is wary about standard remittances for example. There is currently no futures market for virtual currencies, so no way to hedge against possible volatilities in their value. Moving consumers from an established transfer system they know and trust will be tough too, he adds.

Another challenge is connectivity. To make a transaction with virtual currency, both parties need access to a smartphone or internet connection. “And most of the unbanked population doesn’t have access to either”, Cockerton concedes.

The development of affordable, good quality smartphones by the likes of Google could feasibly shortcut the problem. So could pioneering technologies that allow mobile phone users to covert virtual currencies via mobile banking systems such as M-Pesa. UK-based tech firm Kipochi is working on just such a solution.

The challenges don’t end there. Virtual currencies will never become mainstream without user-friendly products. And to create those will require a “dedicated ecosystem of technologists and startups to serve the underbanked market”, says Cockerton. That won’t emerge overnight.

Ever optimistic

The crypto community is nothing if not optimistic, however. Eric Benz is typical of those who refuse to be daunted. Benz is director of international operations at GoCoin, a crypto-based payments platform looking to resolve the problem of market liquidity by enabling local merchants to accept and process virtual currencies.

“Right now there is no marketplace, so how do you create that marketplace and fuel adoption? You have to go out and convert and get merchants to accept crypto”, he says.

He isn’t worried that most of the world’s unbanked aren’t ‘digital natives’. Quite the opposite. Being largely free of credit cards, e-banking and the other “legacy issues” of a paper money system makes them “more nimble” and more open to adopt a different approach.

How and when a pro-poor virtual currency system might come about remains an open-ended question. But it’s a question the crypto community is actively asking itself. If nothing else, that puts them one step ahead of most bricks-and-mortar banks.



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