• Sendi Young, General Manager at Ripple


• 04.10.2021 02:30 pm
#finance

Over the past decade, advances in technology have greatly improved access to financial services for millions of people and businesses around the world. It’s been an incredibly rewarding industry to be a part of, but we still have a long way to go for our world to be truly financially inclusive.

Despite technology advancements, many small and medium-sized enterprises (SMEs) lack access to simple and affordable financial services, leaving them with exorbitant costs for overseas transactions. What’s more, delayed payments to overseas suppliers, employees or other critical partners can be very damaging to these businesses. Meanwhile, customer expectations remain higher than ever due to our ondemand world leaving many SMEs looking for new innovative solutions to improve operational costs and unlock trapped capital.

The current financial infrastructure was built to serve big banks and big corporations. Isn’t it time that it was updated to reflect what the world actually looks like today?

Barriers to financial inclusion

Today’s financial infrastructure is antiquated. It was created decades ago - pre-internet - and although there have been marginal updates to the user experience, the plumbing that underlies our financial system largely remains the same, which creates challenges for opening up access to the unbanked. For many unbanked individuals, remittances are a primary source of income. But challenges such as long settlement times, high fees,and the lack of verifiable identity cause problems. It’s shocking that in today’s digital age where we can exchange information world-wide in near real-time over the internet that sending money cross-borders often takes 3-5 days. What’s more, the transaction costs tend to fall on the shoulders of those receiving the money. According to the World Bank, globally, sending remittances costs an average of 6.38 percent of the amount sent.

It is these high costs and cumbersome payments that have led the majority (71%) of SMEs to believe cross-border payments are problematic, yet they are reliant on cross-border payments for growth, both to access new customers and to tap into suppliers and outsourced employees. The current payment system is not wired to suit their needs. High costs associated with these payments negatively impact their cash flow and makes it harder for them to compete with large enterprises, especially without access to additional capital (around 70 percent of SMEs in emerging markets lack access to credit, according to the World Bank). In addition, as technology advances, customers’ expectations have become more demanding for instant gratification and that includes the payment experience - putting another layer of pressure on SMEs to meet these expectations.

Blockchain and cryptocurrencies will change how people interact with financial institutions

Blockchain technology and digital assets have the power to significantly transform all industries and create innovations that we haven’t even thought of today. Rather than make incremental improvements that merely replicate how we exchange value in the physical world, this technology provides the industry with a huge opportunity to make changes to the payments system to make it purpose fit for today’s world - digital, global, on-demand and highly connected.

There’s no denying that the invention of crypto and blockchain technologies have broken ground within the payments industry. These technologies are upending decades of siloed, slow and expensive financial infrastructure, and putting a spotlight onto how cryptocurrencies can transform the future of finance. This year alone, we’ve seen mainstream adoption by companies like Square, Robinhood, Visa, Mastercard and PayPal who have firmly integrated crypto into their product stacks. Meanwhile crypto adoption is growing in countries like Nigeria, Vietnam, Turkey and the Philippines where consumers are using the technology for cross-border payments and peer-to-peer payments.

Blockchain and cryptocurrencies can enable real time payments and dramatically cut down transaction costs by streamlining the payments process and storing every transaction in a secure distributed ledger. As soon as a transaction is recorded, the receiving party has access to the payment – meaning no middlemen, no delays, and no unnecessary fees, which is the common roadblock to efficient payments. Revolutionising cross-border payments in this way with blockchain technology, means money is where it’s needed most: in the hands of the underbanked and underserved businesses.

The benefits of blockchain and crypto assets are clear; basic financial services will improve, particularly when it comes to receiving or sending funds electronically, from paychecks to COVID-related economic impact checks.

Unlocking the next generation of payments with the blockchain

Over the last two decades, financial services have gone through a massive digital transformation with the advent of cloud computing and smartphones, priming the industry for the next generation of payments that serves to bring us 10x further in improving the current financial system.

Cryptocurrencies and the blockchain enable digitally native experiences and make how we buy, borrow, sell, invest and send money across the world more efficient, transparent and inclusive. As the industry matures, blockchain technology can be used to solve real world problems on a global scale, drive the expansion of financial services so everyone can benefit from economic growth, reduce the income inequality gap and help lift households out of poverty. Blockchain technology has enormous potential to pave the way for a new era of financial inclusion by helping two billion unbanked people across the globe and enabling SMEs to compete with larger industry players. It’s an exciting industry to be a part of and I’m excited to be on this journey with Ripple to lead today’s revolution in payments.

If we can democratise financial systems, the same way that the internet democratised information, we can bring billions of people into the global financial system.