This movement can be seen in recent times with the adoption of digital finance by Southeast Asian ride-hailing giants Grab Holdings Inc. and Gojek. Both invested some of the billions they raised into in-app payments and financial services. As smartphone penetration in the region continues to grow and the imminent expansion of 5G Wireless, the potential to reach out to a wider net of users, including the underbanked and or those left out by traditional banks, also referred to as the unbanked, is tremendous.
This ever-growing base of consumers looking to find convenient financial solutions at their fingertips is rapidly perpetuating the rise of decentralised finance (DeFi), dovetailing with the booming fintech sector, leading some to dub it as Fintech 2.0.
DeFi is essentially a monetary system built on public blockchains like Bitcoin and Ethereum, seen as an alternative to the traditional global financial system. With DeFi, not only anyone with an internet connection and a smartphone could access financial services, it also renders cross-border transactions more affordable as it removes costly intermediaries charging remittance fees. Some have said Defi is the “true fintech revolution”!
Clearly an alternative banking intermediation system provides an array of opportunities including the ability to be truly financially inclusive, driving development, potentially lifting millions of Asian households out of vicious poverty. Access to basic “101” financial services like a savings accounts or mobile money services enable the underserved to store and transfer funds, which can help improve future earning potential.
For example, according to World Bank report, the Global Findex 2017, market vendors in Kenya, especially women, saved at a higher rate and invested 60 percent more in their businesses, after having access to savings accounts. Women-headed households in Nepal spent 15 percent more on nutritious foods (meat and fish) and 20 percent more on education after receiving free savings accounts.
The transparent nature of blockchain transactions or switching from cash to digital payments has led to another benefit: enabling the reduction of corruption apart from improving efficiency. For example, according to the same World Bank report, the leakage of funds for pension payments in India dropped by 47 percent (2.8 percentage points) when the payments were made through biometric smart cards rather than being given cash.