“Oh, the unbanked are not using crypto!” Monique Morrow, co-founder of the Swiss nonprofit The Humanized Internet, told me in an interview.
Morrow added that the “ID problem” is the biggest barrier. Crypto exchanges and trading platforms, just like banks, require government-issued IDs for know-your-customer compliance processes. Unbanked people often don’t have passports to meet those KYC requirements. In short, crypto companies and banks often have the same limitations when it comes to serving the unbanked.
As such, data on cryptocurrency usage for Europe’s unbanked population is non-existent. This fact, by itself, may speak volumes. Only 17% of the general European population are using cryptocurrencies, according to a 2022 report published by the crypto exchange Gemini. Based on his interactions with unbanked homeless individuals, Andrew Funk, the founder of the international nonprofit HomelessEntrepreneur, told me in an interview that he has rarely seen unbanked individuals using crypto.
This is not surprising. A 2021 study finds that regions with a higher percentage of unbanked individuals exhibit lower – not higher – bitcoin usage based on the analysis of all the Bitnodes operating worldwide between 2014 and 2018. The study found that bitcoin infrastructure is currently “serving the banked population more than the unbanked.”
Another 2021 study based on data provided by the Federal Reserve Bank of Atlanta since 2009, paints a portrait of the typical cryptocurrency user that is in stark contrast with the profile of the typical unbanked person provided by the latest ESBG report: poor, unemployed, under-educated, female, and in Europe, older. Unfortunately, these people may not have a political voice, so their needs are ignored by lawmakers drafting regulations that could cut them off from the cryptocurrency market.
“Regulating crypto exchanges is a double-edged sword,” Elena Gavrielidou, External Legal Advisor to the Cyprus Securities and Exchange Commission, told me in an interview. Beyond compliance issues, a general lack of financial knowledge may limit under-educated Europeans, yet again emphasizing that the same issues that keep the unbanked from using mainstream fintech providers also create hurdles for onboarding into the crypto ecosystem.
Gavrielidou added that European legislation, such as the 5th Anti-Money Laundering Directive and the Markets in Crypto Assets regulation, inevitably alienate certain categories of people who are outside the banking system. These corporate data collecting requirements make it more difficult for the unbanked to use cryptocurrencies. She also noted a lack of European initiatives that directly promote financial inclusion.
To make matters worse, Funk said the unbanked often lack the necessary financial education needed to understand and seek out digital assets. The general population is not necessarily more educated or aware. However, the unbanked have higher risks involved. These individuals may already be struggling to meet their basic needs. Therefore, unless the process of receiving and using cryptocurrencies for everyday purchases – such as buying bread – becomes super easy, the unbanked are unlikely to use them. They will use whatever solution works. And at present, highly volatile cryptocurrencies don’t work for most daily purchases.
On the bright side, some organizations like The Humanized Internet and Shinhan Bank are already working to improve accessibility for unbanked crypto users in Europe. Zenobia Godschalk, SVP of the blockchain company HederaHBAR, said in an interview with me that her company is collaborating with Shinhan Bank on a proof-of-concept facilitating low-cost, locally denominated stablecoin transactions on the Hedera network that could benefit users without a bank account.
Meanwhile, some universities are offering free, accessible blockchain education courses and engaging with legislators as well as marginalized, self-taught students. By fostering financial literacy, awareness, and forging partnerships among stakeholders, such initiatives could help create a more inclusive economy where global payment networks can become a reality, even for the unbanked.
Follow me on LinkedIn.
