In many ways, technology makes the world go round, not money. It is hard to imagine life without cars, planes, instant messaging, video streaming, and even social media. As we have seen in history, new inventions and technology are powerful growth multipliers for societies and set some apart from others. Times have changed and in the modern age of the internet, there is no reason anyone needs to be left behind when it comes to access to new digital innovations.
Why is it that access to financial services is so poor?
Financial needs are both global and local at the same time. While major financial institutions are interoperable on a global scale through systems like SWIFT, Visa, Mastercard, and others, local systems have evolved independently in different regions due to varying regulations, economic activity, and consumer behavior. Sadly, unequal access to technology and complex regulations are working against equitable financial access.
Even though bank account access has increased to 76% of global adult population according to the World Bank, there is clear inequality in the availability, cost, and quality of financial services worldwide. A report published by the African Development Bank shows less than half of the African countries covered have access to bank accounts, not to mention other financial services such as loans, insurance, investment, and savings products. In our own team at Rehive, it is interesting to observe the varying access to financial services for team members in different regions. For example, our team in Amsterdam has access to Revolut which allows them to easily invest in US stocks like Apple, Tesla, or Facebook and conveniently exchange stock for fiat to make purchases on the fly. Whereas our team in South Africa has limited options with less convenience, higher fees, and longer waiting times.
What is the solution?
Innovation inclusion is a key building block to financial inclusion. The World Bank agrees, stating financial inclusion can be accelerated by the use of innovative technologies and the entry of technology-driven, non-traditional institutions. Traditional financial institutions have failed in improving financial inclusion, it’s time for tech to step in.
The open-source software movement has leveled the playing field in many industries, but it remains somewhat untouched in banking and financial services. Banks are really good at holding a tight grip on their strategic moats: regulation and technology. As a result, innovation becomes somewhat stagnant in some regions and people are left underserved.
Bitcoin has introduced the idea of a decentralized unified global financial system as an alternative to a globally decoupled system controlled by countries and governments. That means it is possible to build a money system that can work anywhere in the world without asking permission from a central authority. These decentralized principles provided hope that access to financial services will become more equal. However, the sad news is that it is expensive to build production-ready fintech or banking solutions from scratch. It easily costs in excess of $250K to build just an MVP for an application like Cash App or Revolut. This is particularly true in smaller countries where the market opportunity does not justify the cost of building a modern banking product. There are not enough resources, engineering talent, and capital available to do so.
What is needed to enable local entrepreneurs in countries which lack resources to build the “Cash Apps” that meet local needs? The global underlying financial software and networks are there, what’s missing is a low-cost solution on the application layer of the fintech and crypto stack making it easy to launch financial and banking products without needing any software development. It should be low-cost and easy to roll out a new product that is interoperable with global and open payment networks like Bitcoin, Stellar or Ethereum, while branding is configurable to target a specific market segment. It is silly that each new neobank builds its own applications in-house costing millions of dollars, especially when the feature sets are quite standard for each.
Shopify is a great example of how they have leveled the playing field for e-commerce irrespective of geographical location. Shopify even reached the tipping point where it is so well-rounded and flexible that major brands like RedBull use their services, instead of building in-house.
In short, what we need is a platform like Shopify, but for banking and financial services.