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Cash is the Competition
Overcoming the penalties of financial inclusion
Providing the unbanked in Mexico opportunities and products that improve financial inclusion is less about competing with the modern banking system and more about competing with cash. For the last ten years, Web2 entrepreneurs have attempted to compete with the current banking system to pull the unbanked into the modern financial network. An evolution in intuitive interfaces on top of the current rails is not enough; it requires a technological leap. Only advancements in decentralized blockchain-based currencies offer these types of opportunities.
When asked why someone doesn't have a bank account in Mexico, respondents gave the following answers for the top reasons: not having enough money, don't need an account, being too expensive, having an institution too far away, and lack of documentation. It's easy to see why many entrepreneurs have tried to create web2/fintech products in Mexico to address the needs of the unbanked. 50%+ or more of the population unbanked, lack of trust in the banking system, bureaucracy, and access in rural areas would lead any entrepreneur to believe internet-based banking has an opportunity and success. And there is, but many are not seeing the viral adoption from the unbanked one would expect. Entrepreneurs have been focused on the wrong competition.
Cash is king. 93% of payments are in cash — the network is the most liquid and solid ecosystem in the world. The unbanked in Mexico have little reason to move away from cash as a primary source of transacting. Additionally, moving off cash only has its cost. Transacting in cash enables Mexicans to avoid taxes and penalties required by fintech alternatives. Products looking to increase the number of unbanked who will pull out of the cash-only network will have to provide financial services whose value is greater than the penalties they face entering the modern financial system.
Similar to web2 fintech, crypto offers advancements in a digital store of value and long-distance payments. The blockchain alone reduces remittance costs, protection from minimums and overdraft fees, trust in ownership, access to institutions, and a complete removal of the bureaucracy preventing many from starting. These advancements may be enough for the first billion users entering crypto but not for the unbanked. The future must offset the penalties required by the unbanked to transition from a cash-only network. Crypto will need to provide intuitive and inexpensive opportunities for the poor to grow their wealth and increase opportunities safely on the blockchain.
Over the next few months, etherfuse will announce and deploy a suite of products that will give anyone with a passphrase and the internet financial vehicles that were previously only available to the wealthy. These products by far will offset costs and remove barriers preventing the unbanked from financial inclusion.
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