Reports indicate sparse evidence for the idea that FinTech is promoting financial inclusion, yet bold claims like the “democratization of finance” are tossed around — so what’s really happening? Financial inclusion fundamentally comes down to this:
“Making financial services more affordable and accessible.”
The what is pretty straightforward, but the journey to get there isn’t, and any product or service aiming for financial inclusion needs to satisfy three basic characteristics:
- It works. Rather than a “white paper project” or a proof of concept, you need a functional product.
- It solves pain-points in delivering financial services to the underserved.
- It creates value for the financially underserved.
A Value Chain Perspective
Therefore, a blockchain product that serves to democratize access to investments just needs to optimize the value chain with (1) a working product, (2) effective delivery, and (3) value-creation:
While many blockchain projects are having a go at financial inclusion, not many solve all three pieces above. One live project that’s done so is Invictus Capital: An alternative investment platform powered by blockchain rails. Blockchain enables 24/7 user-onboarding, no minimums, and no lockups. These are precisely the “effective delivery” methods that grant Invictus access to emerging markets.
After “delivery” comes the “valuable solution,” which Invictus provides through democratized alternative investments and servicing portfolios. As Daniel Schwartzkopff, Invictus Capital Founder & CEO writes:
“We enable financial inclusion — in developed markets we allow people access to alternatives like venture capital and real estate that traditionally had very high minimums and long lockups. In emerging markets we service entire portfolios as there are no local alternatives.”
Solving financial challenges in emerging markets is an entirely different ballgame from established markets, as various crises and infrastructure challenges are reason enough for some to argue that investing in emerging markets may not be worth it. A solution, then, that facilitates financial inclusion in emerging markets is in dire need.
Another issue entirely is the instability of emerging market currencies:
While some die-hard blockchain followers prefer holding cryptoassets over even fiat currencies like the USD, emerging market currencies are losing tremendous value over even the dollar, as Daniel notes:
“Emerging market currencies have lost between 30 and 95%+ against the dollar over the past five years.”
We’re all aware of the most extreme examples of hyperinflation, like that of the Zimbabwean dollar, with banknotes of up to 100 billion dollars being printed. A more recent case is Venezuela, which is suffering inflation of over 10,000% a year. However, the reality is that many more problems, from government seizure to local catastrophes, are wreaking havoc on emerging market currencies around the world.
Ultimately, giving people a way to save on the blockchain that isn’t subject to these crises is an incredibly valuable solution.
Guest contribution by @Frederik Bussler