Blockchain conjures images of bitcoin millionaires and ICOs creating multi-million dollar businesses in hours. But how does that help the millions of people in the UK who live in poverty, or the 1.5m who don’t have access to mainstream banking? You’ve probably heard about the cost of living crisis a lot recently. So you should. We should be talking about it every day.
Colleagues, neighbours, family, nurses, people who served your coffee this morning, even the guy who drove your train – they are all paying more for their everyday goods, services, household bills and finance. It’s called the poverty premium. While major banks are leaving the high street, food banks are taking their place.
I first encountered this about 15 years ago, working for a charity. A young couple came looking for financial support, because their son Joe was in hospital. I know children do bizarre things, but when I found our Joe had eaten paper, I was a bit shocked. Joe knew that his parents were having a really hard time, so he drew his favourite food (pizza) on the paper before he ate it, because he knew they couldn’t afford to buy food. My whole world changed.
The only people who would help were the local Credit Union. If you haven’t heard of a Credit Union, don’t worry. They are less well-known here in the UK, despite being around since the 1960s, with only two per cent of the population holding an account. By contrast, In Ireland it’s 77 per cent and in the US 54 per cent.
Let’s take a moment to imagine this. Your kids have a sick day from school because you can’t afford to send them on their school trip. You join the queue at a local food bank early, so they don’t run out of food and you can feed your family. You normally work the late shift so you can get paid overtime, but they call to let you know they don’t need you today. You play hide and seek with the kids when the landlord knocks on the door to collect his rent – you mainly hide. You use your last scrap of credit on your phone to search for a same-day loan, and borrow £200, just for a few months, to see you through.
Remember, this is a reality for people across the UK. Credit Unions will lend to people who may otherwise resort to payday loans, with ethical rates of up to 42 per cent APR, versus exploitative 1,200+ per cent APRs by payday lenders. They don’t have any shareholders, so they distribute their profits back to their members, often paying two per cent or more dividend on savings.
The problem is that Credit Unions are held back by poor technology, highly inefficient processing and crucially they don’t have access to the banking networks. The best they can do for someone with no bank account is offer an expensive prepaid debit card, often with monthly fees and transaction charges of up to £1.50 – even if you’re spending 50p on a tin of beans!
While that seems exploitative, these transaction fees exist in mainstream banks too, but they are absorbed by all the other fees and charges on your account. They are the fees of a highly inefficient banking network.
So what is this doing in an article about AI and blockchain? Imagine harnessing the power of a distributed ledger and AI, and making them the very centre of a proposition aimed directly at the financially excluded.
This technology is now being developed to create a global network of Credit Unions. With the right technology, to support their ethos, Credit Unions will quickly become the mainstream banking option – a cool, inclusive place to bank. Distributed ledger technology will connect these independent organisations, creating an alternative banking network, which is faster, cheaper and safer than traditional banking, aimed at supporting and including everyone, not just the financially excluded.
Crucially, with the cost of a transaction significantly lower, fees can be easily absorbed by Credit Unions, meaning they don’t need to be passed on to end customers.
AI will use data to drive a new class of financial education tools which deliver relevant, useful and targeted advice, as well as predict when someone may be getting into difficulty and take proactive steps to support them.
A safe, ethical place to put your money, Credit Unions will soon become a new wave of community-focused challenger banks, and over the next two to three years we’re going to see one of the most exciting examples of change in mainstream financial services for decades.
Blockchain is almost 10 years old. Let’s celebrate that milestone by lifting millions of people out of poverty.
Important Information: The views and opinions provided by City A.M.'s CryptO Insider are of those named in the article and should not be taken as investment advice. This communication is marketing material.