Daniel Vogel
View from the Top

Digital Currencies: A Tool for Financial Inclusion?

Thu, 02/08/2018 - 10:17

Q: What is Bitso’s vision for Bitcoin and other cryptocurrencies as investment, payment and microtransaction tools?

A: The technology behind digital currencies must be understood as an enabler for many different things, not only as a technology that will impact microtransactions, remittances or as an investment tool. It is a technology that changes the concept of how money works and it opens the door to so many things, just like the internet did in the 1990s. In the same way the internet changed the way we access information, blockchain has the potential to change the way in which we perform transactions and in general, how we transmit value.

In 2017, we started to see digital currencies increase in value, which led many people to invest in them, leading to an even greater rise in value. Many people started buying digital currencies not because they thought it was more useful for transactions or because they had a greater affinity for virtual money but because they saw it as a new way to make money. Digital currencies can be alternative assets to store value. Nevertheless, at Bitso we believe that the underlying technology is much more than just a store of value. It is also a medium of exchange, a way to monetize networks and a tool for disintermediation, among others.

Q: What cultural changes have occurred as a result of the introduction of blockchain and digital currencies?

A: In Mexico, we have seen an interesting phenomenon: people have begun buying digital currencies as a means to incorporate themselves into the digital economy and in particular, to make either international payments or payments on the internet. Most of our clients continue to be young people, with an average age of 26 years. This segment includes young people who have no bank account or credit card. Similarly, these users dislike the idea of physically going to a bank or have been rejected by the traditional financial system. This segment of the population views digital currencies as money created by their generation. Other buyers are those over 50 years old who suffered first-hand the country’s economic crisis and want their money to be in a decentralized network without a central entity.

Q: What are the challenges and opportunities in Mexico for the use of blockchain to promote financial inclusion?

A: The problem of financial inclusion has multiple dimensions. However, digital currencies and blockchain can be a breakthrough and we are already seeing several indications of this. This technology, however, is not a panacea and cannot solve everything but we are seeing many cases where digital currencies are helping people who are not included in the formal financial system in Mexico. Some examples include people who do not have a credit card or a bank account. If these people want to perform any transaction online, many are making transactions through bitcoin or ethereum. Financial inclusion does not need to be defined as having a bank account, it should be defined as having access to loans, insurance, a retirement investment fund and so on.

Bitso has more accounts than any brokerage house in the country. In remote places like Sierra Tarahumara, there were never fixed telephone lines because it was too expensive for companies to set them up. However, today, most people in the Sierra Tarahumara have a mobile phone or a smartphone. This situation provides the perfect opportunity to rethink financial services. We have customers located in places where there are no banks let alone brokerage houses. Because the distribution model is completely digital, we think about everything differently.

International companies are starting to provide different kinds of credit through blockchain and digital currencies. This means that if you are Mexican and you want to ask for a loan, your choice of offerings no longer originates only with Mexican banks or Mexican fintech companies but with almost any company in the world that wants to have exposure in Mexico. When competition stops being local and becomes global, that is good news for consumers.