The traditional banking systems in place across the world have served billions of people and allowed them to save, invest and borrow for decades. But there are also billions of people who have been left behind as the conventional banking offering fails to meet their needs and they find themselves being excluded from the global financial ecosystem.
The advent of decentralised finance (DeFi) has enabled essential financial services to be provided in a way that more people than ever can access, no matter their location or income.
As DeFi is a financial ecosystem enabled by blockchain technology, the middlemen that are needed in many traditional financial transactions can be removed. Everything from excessive fees, negative customer experiences and poor products can be overcome thanks to the rapidly growing products available through DeFi platforms.
According to recent estimates by Acuant, there are around two billion unbanked people in the world. More inclusive financial services are being built around the DeFi ecosystem that break down barriers to access, reduce costs and use technology to empower users.
A number of start-ups have launched cutting-edge DeFi tools with the aim of solving many of the challenges that stop unbanked people from accessing vital financial services. As unbanked people have not built up credit scores, it can be extremely difficult and costly to access loans or other financial products.
DeFi firm Chainlink is working with a range of partners to give DeFi users the ability to build credit scores that can be linked to traditional credit bureaus, providing those individuals without a credit history a much-needed financial record.
Supporting small enterprises in developing nations is a powerful way to improve not just the business itself but also help the local community. Accessing capital is a major obstacle for many growing businesses, especially those that lack a credit history.
This capital gap is being addressed by innovative DeFi firms in regions where loans are most needed. In Africa, a start-up called Goldfinch is working to create a decentralised lending protocol to enable businesses that do not have a cryptocurrency holding to obtain crypto loans.
The benefits of engaging with the DeFi ecosystem for unbanked individuals are clear. But several practical challenges exist that are limiting the appeal and usage of DeFi in developing countries. Perhaps one of the most pressing issues in the DeFi space is the lack of usability and customer experience weaknesses many services provide.
Like any other fast growing industry, scams and fraudulent activities are a risk for DeFi users, as new projects can launch without guarantees they will be successful. As this relatively immature ecosystem evolves, short-term schemes and poorly build DeFi firms will fall away and innovative and user-friendly enterprises will remain.
While the true potential of DeFi solutions is still to be seen, if utilised correctly, the opportunity for products and services built on this platform to genuinely transform the experience for unbanked people across the globe is unprecedented.
Join us on 12th July at County Hall, Westminster for FTT DeFi to learn more about how decentralised finance could unlock new opportunities for financial inclusion and wellbeing.
Written by Finbarr Toesland, Editorial Contributor, VC Innovations