Any vibrant economy is defined by the underlying strong and robust financial systems. While the U.S. financial system has offered many the ability to seek education, buy a home, or build businesses, there is still a huge segment of the U.S. population that is living in the financial fringes. They lack basic banking or payments services that serve as an entry point to the broader financial services ecosystem.
The COVID-19 crisis and the CARES Act response have brought to fore the inherent shortage of banking services and inefficiencies in payment disbursement in the U.S. ecosystem. We’re now witnessing problems that were always lurking in the shadows. At Minddeft, we believe that existing technologies might not be a cure-all, but can create a more open, more equitable financial system.
The 2018 FDIC National Survey reported that the U.S. has 6.5% unbanked households and 18.7% underbanked households. Together, they represent 63 million adults living in the States. The most common challenges faced by these individuals is not having enough money to open or maintain a bank account, a lack of trust in the banking system, higher fees while accessing banking benefits, and privacy concerns with banks.
Now, let’s look at how Digital Dollar Stablecoin can help in the U.S. financial ecosystem:
As per the FDIC report, more than 52% respondents cited not having enough funds to keep a bank account as a result of not having a checking or savings accounts. Another 34% of the respondents listed this as the main reason.
Stablecoin wallets, on the other hand, don’t demand a minimum balance. People using stablecoin wallets can keep as little or as much digital balance as they want. Just like traditional banks, these wallets are places for people to securely store money. Further, stablecoins don’t restrict access based on how much money must be kept in the account at any given time. Slowly merchants have started accepting stablecoins as a form of payment for everyday services, we’re sure this trend will catch on in the years to come.
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In the same report, more than 30% of unbanked or underbanked participants mentioned lack of trust as one of the reasons for not having a bank account, whereas more than 12% listed it as the primary reason.
Compared to the traditional bricks and mortar banks, Stablecoins (as well as other crypto assets), are suited to increasing trust in the users since they allow complete control and ownership of the money by giving users the option to self-custody the funds. Essentially, stablecoins function like cash, as the users keep it conveniently to their digital wallets, which allows users to manage their own money or opt for another crypto institution to oversee their funds.
If the users choose the option to have personal custody, they have full control of where their deposited funds are stored, loaned out or used as they do when using traditional bank accounts. What this means is that all of an individual’s funds are in the user’s account. So, the users of stablecoins can withdraw their account holdings at any time without much advance notice. Stablecoins, being extremely transparent about where the money is stored, and providing users the ownership of their assets, completely challenge traditional banking system.
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Privacy is another crucial reason why many unbanked and underbanked avoid financial institutions and bank accounts. More than 28% cited privacy as one of the reasons, while around 5% listed this as the primary reason.
Stablecoins obviously offer a lot more privacy than traditional institutions by offering self-custode (as explained above), and relying on P2P payment systems to process transactions. If individuals choose for self-custody, the ways they spend and move their money remains private to them as there is no third-party overseeing the accounts. P2P payments, too, allow users to transfer funds directly between two parties, without needing an intermediary like the traditional banking system.
Also Read: Cryptocurrency Exchange Development
Better services than traditional banks
Another reason for the growth of cryptocurrency usage is a general increase in the number of things that can be conducted online. Talking specifically about the U.S., more than 90% of the adults are known to use the internet at some or the other time.
This shift has coincided with the decline of physical spaces to conduct these same services. Ever since the last financial crisis ended, we’ve seen more than 10,000 banks shut down. This has pushed further Americans farther down from proper banking facilities, so much so that they’re in an outright banking desert. However, with an increasing life in the online space, the loss of physical features can be easily replaced by digital, blockchain-native services like stablecoins.
Also Read: Things to know about Bitcoin Cold Storage
These problems aren’t confined to the U.S. alone. Remittances is another example where cryptocurrencies clearly outsmart traditional, entrenched banking, and financial institutions. For legacy services, the World Bank found that the global average cost of sending $200 abroad in the first quarter of 2020 was 6.8%, or $13.60, and international wire transfers typically take 2–5 days to clear.
In legacy systems, individuals face high fees and wait time, and are also offered limited options of whom and how they can send money. Only the privileged who are either banked abroad or can access transfer services like Western Union can receive money.
However, with cryptocurrencies, individuals get the benefit of sending it in the form of cryptocurrencies or use them as a bridge asset to make these transactions at a fraction of the cost of traditional systems. Crypto transactions occur within a matter of minutes, not days, and any person with an internet connection can send and receive money via crypto services.
The World Bank estimates that more than $529B in remittances flowed to low and middle-income countries in 2019. This market can be literally overhauled by using blockchain-based tech to power transfer, reduce fees, and make money transfers as easy as texting!
In conclusion, stablecoins provide benefits within the system too
Stablecoins are not only helpful for the unbanked or underbanked in the U.S. but they also help the current participants of the financial system. Time, cost, and barriers to entry can all be controlled with stablecoins, and give users more financial freedom.
As a top blockchain development company
, we understand the benefits that cryptocurrencies provide to the users put pressure on legacy institutions and put them in a position to improve their offerings and services. This pressure will have secondary effects, like lower fees and barriers, which would make traditional services more accessible to disadvantaged groups.
In concept, Stablecoins have the necessary element to build a much more robust financial system. The current pandemic has exposed deep flaws in our financial systems. Cryptocurrencies offer real opportunities and facilities to those who are not considered by the current banking paradigm.