A Favela in Rio De Janeiro Brasil

Across the world, roughly two billion people are unbanked. Another four billion are under-banked. Most live in emerging markets, where formal financial services can often be a serious and intractable problem. Data shows that the underbanked often don’t trust banks, and banking institutions have historically not trusted them.

This is partly due to the fact that the poor lack consistent, if any, employment history since so many still are working within the cash-driven, informal economy (e.g. 51% of Brazil still operates under a pure cash economy). As a result, hundreds of years of financial innovation has excluded the poor, keeping them from enjoying the benefits of globalization and all financial instruments meant to safeguard from capital insecurity.

They’re trapped.

But there’s a solution. The blockchain could empower the poor. Cryptocurrencies can act as trustworthy spaces for skeptical populations, keeping funds safe from historically untrusted financial institutions. Because of this, blockchain is positioned to help emerging markets leapfrog traditional banking services that have not yet expanded to the underserved.

Leapfrogging is a concept in which poorly developed economies adopt modern systems without trodding through lagging intermediary steps.

Due to limiting infrastructural factors, emerging markets have been leapfrogging technological advancements for decades.

A great example of this is the personal computer. The personal computer (and cell phones, for that matter) were developed and adopted for personal use in places like the United States many years before the emergence of the smartphone.

But emerging markets experienced a different transition — these markets never owned a desktop computer or a cellphone. Instead, communities and individuals leapfrogged them entirely, opting instead to adopt low-priced android smartphones that provided a faster and cheaper way of communicating digitally.

M-Pesa, another exemplary leapfrogging example that innovated its way into becoming the largest application in Kenya for payments, financing and banking services through a mobile a system.

Within two years, M-Pesa transfers amounted to 10% of Kenya’s gross domestic product (GDP) — now it accounts for nearly half. Soon, there were 100 times as many M-Pesa kiosks in Kenya as cash machines.

Brazil also provides a similar example.

In the 1960’s, driven by high gasoline prices, the Brazilian government began promoting ethanol as a form of alternative fuel. They were one of the first countries in the world to do so. The effects have been significant: Brazil is now the second largest producer of ethanol fuel in the world. Out of necessity, Brazil found a way to leapfrog fossil fuels.

Leapfrogging has enabled developing nations to get ahead of developed nations in certain industries.

In China, it’s difficult to create a new personal bank account due to strict governmental regulations. To address this problem, an array of tech companies like WeChat and Alipay have entered the financial space, creating closed ecosystems of e-payments, which have helped make physical wallets obsolete for millions.

Now, China’s mobile payment infrastructure is actually better developed than the United States despite the U.S. having a larger economy.

Part of the reason that China makes trillions of dollars in mobile payments each year (compared to mere billions in the U.S.) can be attributed to low transaction fees and the act of businesses innovating in the midst of highly extraneous constraints. These constraints actually become opportunities for innovation outside of the current financial system.

Restaurants in China are now accepting QR codes for payments. Users can also use their phone to pay for insurance, create a savings account, or even give money to homeless people!

These systems are by all accounts more advanced than mobile payment systems in the United States — and they’re all a result of leapfrogging.

In the same way, blockchain can empower the unbanked to leapfrog costly and archaic banking systems and unlock previously inaccessible financial services.

Although they might not have bank accounts, the unbanked do own smartphones.

This presents a great opportunity for companies to approach the unbanked with mobile blockchain services. Cryptocurrency can be used to transfer payments without the need of a traditional intermediary. Smartphone data can also be tracked on the blockchain, enabling the creation of innovative and dynamic credit scoring models. In a decentralized and peer-to-peer manner, the blockchain can also enable new micro-loan efforts, and it could easily connect global pools of lenders wanting to earn interest on those loans.

Blockchain can create new, more efficient capital markets for these users to access credit and transact with the rest of the world.

Right now, both the unbanked and underbanked in emerging markets don’t have the same access to reliable capital markets as America. The capital markets of countries like Brazil or Mexico are remarkably unstable and inefficient in comparison to markets in the U.S. This means the citizens of those countries have limited ability to leverage what assets they do have to ultimately build wealth.

In a decentralized global cryptocurrency market, they would not be bound by the restrictions of their government, banks, or geographic location. Decentralized ledgers do not require the oversight of a central governing body.

With the blockchain, people in emerging markets could leapfrog existing financial limitations and join a global decentralized financial economic system better able to serve them. It could create a system that allows poorer people to start saving money and interacting with the financial world.

This allows for myriad opportunities for companies, too.

At Airfox, we’re helping communities leapfrog inefficient, costly, and archaic models of financing by using smartphone usage data to determine whether users qualifies for a microloan. We’re taking this readily available data and ledgering it. If we determine someone qualifies for a loan, we will put it on the blockchain. In effect, we are creating a credit bureau powered by a public and decentralized ledger; A financial system for the people by the people.

AirFox / AirToken Mobile Blockchain “Bank”

Leapfrogging is critical for the innovation and disruption of monolithic incumbents

By focusing on the developing world, Airfox (and the next wave of start-ups) can quickly reach billions of low-income consumers. With only a smartphone and a low-cost data plan, consumers can access services that previously required expensive personal distribution networks and hefty fees. The time for entrepreneurs and venture capitals to focus on the 99% is now.

New enhancements in blockchain technology enable start-ups to compete more effectively against the fat-cat oligopolies that exist in these industries. The time has come for Airfox and others to bring new solutions that are over 10x better than local products. We will truly impact people’s lives and, in the process, change the world for the better.