Unbanked population by region (%)

Source: Findex database, Worldbank

Furthermore, a report from Deloitte has listed a selection of reasons (according to Findex and the World Bank) as to why citizens in certain countries do not have a bank account:

• geographic access to financial institutions is limited

• insufficient funds to operate a bank account

• financial services are too expensive, relative to people’s income

• lack of necessary personal documentation (ID, passport etc) to open a bank account

• family member already has a bank account

• religious reasons

• lack of trust towards financial institutions

Another report, commissioned by Amazon, found that, “Digital payments will be a core foundation for extending basic financial inclusion. More than 90% of respondents consider that innovations in digital payments processes were among the most significant areas in which fintech was improving financial inclusion objectives within their own jurisdiction.” One of the key challenges is provision of assistance to SMEs, which are often unable to obtain credit since they are outside the focus of traditional bankers. The World Bank estimates that the credit gap for SMEs globally is $2.6tn! Given the importance of SMEs to the global economy their financial exclusion is a missed opportunity, not just for them, but the world economy as a whole.

On the subject of financial exclusion, the SEC in the US is considering allowing ‘gig’ workers to be allowed to be paid up to $75,000 worth of share options over a three-year period. Historically, the people who can qualify to be a member of a tax efficient option scheme are fulltime employees.

Gig work as a source of income in different countries

Source: BCG Future of work

The term ‘gig’ has previously referred to temporary employment embracing freelancers and independent contractors, who are typically self-employed since they often have more than one source of income. Increasingly, so as to be as flexible as possible, companies have relied on gig workers as opposed to offering them full-time positions meaning companies avoid having to pay additional benefits such as pension contributions, healthcare etc. Examples of such firms using gig workers include Uber, Deliveroo, Lyft, AirBnB and Amazon. Since the financial crisis in 2018, according to EY, “the full-time hiring rate among the S&P500 index companies (i.e. the largest companies in the United States) has fallen to 2.7 per cent.

 Meanwhile, temporary workers make up 17% of all employees in US companies”.

A firm known to be using digital currencies to help improve the payment of gig workers is Electroneum’s AnyTask. A gig worker in Asia, India or Latin America can undertake freelance work for someone in Europe, USA or Japan and then be paid using a digital currency called ETN, whereby saving the cost of international banking fees. In other jurisdictions we have seen similar initiatives, the Philippines’s (Coins.ph), in Tunisia their postal service have a partnership with Monetas and DigitUS. While those searching for a Blockchain developer, a copywriter or a translator etc can opt for the platforms that source gig workers such as Upwork or twago. Likewise, there is the digital wallet from Abra which gives gig workers the ability to create their own ‘financial footprint’, providing them with a proof of existence and the basis from which to start building a credit record.  

Whilst there was considerable talk back in 2017 as to how Blockchain technology and crypto currencies would be able to embrace the unbanked and make a fairer global economy, we are beginning to see tangible signs of this occurring. There are, without doubt, challenges still ahead: improving the user experience, ensuring people’s wallets are not hackable, that the new digital currencies are interoperable with each other and the platform on which they operate are globally scalable.

The top ten biggest stable coins

Source: CoinGeko.com

Facebook’s Libra project was launched June 2018 and originally in its white paper it proposed to create a digital currency that would be backed by basket bank deposits and government bonds denominated in US Dollars, Euros, Yen, and British Pounds. Libra has now announced that it is to rename itself Diem, although it will be keeping the same logo. Although Facebook would still appear to be very much involved, Dahlia Malkhi, the new CTO of Diem is, and has been, Lead Researcher at a subsidiary of Facebook. Novi which is Facebook’s representation on the Libra, sorry on the Diem governance board. According to a report by the Financial Times, Libra is to launch a US dollar-pegged stablecoin, meaning it will launch a digital currency/coin with each one backed by a US dollar. The project, however, still requires approval from the Swiss Financial Market Supervisory Authority FINMA. 

Therefore, a stablecoin with a governance board backed by the likes of Andreessen Horowitz from Silicon Valley, Facebook, TEMASK (Singapore sovereign wealth fund), Shopify (Canadian version of Amazon), Uber, Women in Banking, to name just a few, is sure to prove popular? The reputational damage to the different organisations on the governance board of Libra ought to ensure risks will not be undertaken so that every Libra $ stablecoin will, indeed, be backed by a $ in a bank account somewhere? Consequentially, would Libra not be a safer option than Tether?

The main challenge Facebook’s Libra has been confronted with is a barrage of negativity from different jurisdictions since these countries fear that, with Facebook’s 2.4 billion and WhatsApp 2 billion active monthly users, it means Libra could become very popular, very quickly. If Libra were to become the payment mechanism of choice, it is feared it may undermine various governments’ control over their supply money, and potentially their economies. How justified these fears are is questionable. Libra, if backed 100% by assets such as cash or government bonds, would not be able to create unsecured coins. Ergo, Libra’s ability to influence monetary policy through artificially expanding or contracting its supply would not be possible - a course of action that many of the governments expressing concerns over Libra regularly do with their own currencies. 

Different governments express concerns over Libra

Source: Belfin club

One of the criticisms of digital currencies relying on Blockchain technology is that they are unable to handle large volumes of transactions. However, Libra, instead of relying on a decentralised peer-to-peer network, will rely initially on the Libra Association and those with permission to modify its Blockchain. Nonetheless, a concern is - will this more centralised structure make Libra more vulnerable to cyber-attacks? It is understood that Libra is therefore looking to transition to a more decentralised style of Blockchain so as to minimise the dependency on the Libra Association. Thus far, there are no further details as to when, or how, this change will be implemented.

Meanwhile, Goldman Sachs is predicting that the digital currency already launched by the Chinese will attract over 1 billion users within 10 years. The Chinese government hopes its new digital currency will help the nation’s traditional banks (which have been facing stiff competition from FinTech rivals) potentially increase their market again in the long-term. The Chinese government is clearly generating a tightening of restrictions on the FinTech sector, as can be seen by the suspension of Ant Group’s (Ant) IPO. Ant, with its one billion users, runs Alipay (one of the most popular payment systems in China) and is now facing a monopolies investigation by the Chinese government along with WeChatPay, which is owned by Tencent. Reuters reported these two payment platforms were responsible for over 90% of mobile banking transactions in the third quarter of 2019. Therefore, it would seem that if the Chinese digital currency is to be a success, Alipay and WeChatPay are potentially more of a threat to its adoption than cash!