Decentralized finance is changing the way banking is operating all around the world including in Africa already, it's allowing 24/7 payments without the worry of bank holiday closures or hidden fees, lowered fees and no monthly fee that is typically required by banks.
In this article we will look at how cryptocurrency is changing how banking is operating and the effects it's having on communities. We will look at how cryptocurrency is helping the unbanked, increasing transparency in financial institutions and the way we make payments and investments.
Bringing Low-cost ‘Banking’ to the Unbanked
Decentralized Finance and cryptocurrency allows consumers to send money from one country to another in seconds and with nearly zero fees, no waiting for banks or AML/KYC processes to complete and without having to fill out any forms. It's helping those who don't have access to formal banking services, making it easy for them to send money from anywhere in the world at anytime.
More importantly this allows Africans to receive money from family members living and working abroad without the harsh money transfer fees banks and companies like western union charge - sometimes exceeding 10% of the transfer amount, especially for small transfers.
In comparison using cryptocurrency and decentralized transfer options you often only pay a few dollars in fees, which can come out to 1% of transfers.
Bankless Management of Finances
Having access to financial services and a bank account has traditionally been very important because it allows people to save money and invest their money, which then allows them to buy things that they need or want, making them more self-sufficient. It's also how they are able to buy homes, pay school fees and support themselves while they're working.
Previously many people in Africa, especially rural areas, had no ability to open a bank account or have anywhere to save outside cash stored in their home, as banks are often far away and require documents many rural people simply do not have. Farmers often lack proof of address documentation or employment information, so the typical methods of going to a local branch to open a bank account are often not available to those who live and work in rural areas even if they could manage to arrange for transportation to one of the few banks in the countryside.
With cryptocurrency and decentralized finance, there is no need for documents or proof of address, but rather you can open an account instantly using any internet-connected device. You don't need to be part of the general financial system or have a bank account.
This means people all over the world can send money, using a cryptocurrency like bitcoin or Dash, to someone they trust – they don't even necessarily have to know their name but can simply check their public wallet address.
Changing the Payment and Job opportunities of Africans
When using decentralized finance, Africans who are otherwise unbanked can become 'banked' in a way, allowing them to work online and receive payment in cryptocurrency, which they can then cash-out relatively easily for their real-life expenses.
We spoke with Chinara from Lagos, Nigeria about how she has been receiving payment from working with a popular cryptocurrency blog called Greenery Financial as a virtual assistant helping with administrative tasks for the site. Chinara told us "I was looking for extra cash to support my family, so I got a small job online to help bring in some extra money and they wanted to pay me in Bitcoin."
She said that "While Bitcoin wasn't something I knew anything about at first when they told me I could sell it at most money-exchanges for little to no fees and it wouldn't cost me anything to receive the payments, I gave it a try, and I'm glad I did. I prefer getting paid in bitcoin now."
As we were talking with her she brought up how difficult it was finding a job online before, as due to being Nigerian her payment options were limited - she had been rejected from Paypal and other popular online payment services, so she simply couldn't accept most jobs.
The ability for unbanked Africans, or in Chinara's case underbanked Africans, to work online rather than having to seek work locally with low wages and long travel times is as huge an economic opportunity for them as well as the rest of us.
Many have already seen this already: Upwork - a website that allows freelancers to post jobs and earn money, has paid out over $1 Billion in jobs since its establishment in 2008. Many people work on the site and earn money working online, exactly like Chinara was doing, but she was earning virtual money instead, which she could actually cash-out quickly into real-life expenses without the fees Upwork Charges.
Making Saving & Interest a real option for unbanked Africans
In the past, many unbanked people were unable to save as banks were often not reliable (or accessible, as mentioned before), and with fees that would often cost more than their interest rate it made it not worthwhile.
But with the new cryptocurrency lending platforms that have came out in the last few years now you can save and earn interest even as someone who's unbanked, as you can deposit into decentralized versions of lending platforms, or some of the centralized ones, and earn up to 11% interest on dollar-deposits, or interest on cryptocurrencies you hold.