Financial Inclusion: Crypto, Fintechs, the MetaHype and Web3By David Roa | Mon, 08/15/2022 - 12:00
I cannot even count how many fintechs are in Mexico and Latin America nowadays but surely a lot. I founded one two years ago (Klinc.mx) looking to improve the financial wellness of employees with an early wages access solution coupled with financial education and insurance/assistance services, since more than 75 percent of people live paycheck to paycheck, which generates a lot of stress, low productivity and high turnovers at companies.
In most cases, fintechs are serving the same customers, just with different flavors of products, lower fees, entertainment features to attract a younger population, lower rates and digital first (acquisition and servicing strategy). Few are investing and truly committed to the financial education needed in the region. Fintechs wanted to reach an underserved population but, instead, captured existing bank customers, as evidenced in financial inclusion trends (barely increased), even though digital adoption has skyrocketed.
On the other side of the equation, we see rapid growth and adoption of crypto in the region, with an 850 percent increase YOY. Migrants are sending money home (remittances increased 950 percent in crypto), inflation is high (governments are printing money and people are noticing), economic instability, a boom in NFTs as a way to make money (play to earn, memberships, art) are all serving as a trojan horse to make people look into crypto. More than 60 percent of people are aware of crypto but 80 percent don’t get into crypto because of a lack of education on the topic.
Since El Salvador made Bitcoin legal tender, 4 million users now have a digital wallet, out of a population of 6.5 million, in a country where less than 30 percent of the population has a bank account.
Even though other countries lack an embracing regulatory framework, such as Mexico, Colombia, Brazil, Argentina and Venezuela, crypto penetration is above 12 percent and in some Latin American countries, it is above 20 percent. Some governments are implementing pilot programs where a few years earlier they were going to ban crypto (Colombia). In Mexico, there is a plan to launch a Central Bank Digital Currency by 2024, which might lower the final transactional cost. Brazil implemented an instant digital payment service (Pix), which helped more than 50 million users make their first digital transaction, most of them unbanked.
I see another factor emerging in the coming years that some people and some companies think is a fad or just a trend. It’s what I would call the Metaverse Phenomenon or the MetaHype. How will society interact in this new era? How will this technology change human behavior?
Let me tell you, it is not a fad. The metaverse concept is happening sooner than later, whether you like it or not. The most important companies in the world are making sure it is the biggest technology innovation of the 21st century (Microsoft, Meta, Gucci, Nike, Adidas, Walmart). Even banks cannot estimate the size of the opportunity: $1 trillion-$8 trillion (Morgan Stanley), $13 trillion (Citibank).
So, why does this matter for financial inclusion?
People spend hours on the internet (Latin America is among the leading social media consumers in the world), providing all personal data and behavior to companies such as Meta and Google in return for connectivity and entertainment. They want to be part of something. Imagine an immersive experience where people can work, interact, play, entertain, travel and learn in one place. It is the Real Matrix, not a movie.
Some think that the Metaverse is a place (internet). I rather like the concept of a point in time when humans value having digital assets and experiences versus physical ones and that’s happening today.
The Metaverse (Centralized of decentralized) will change consumer behavior, since people will be “connected” a good portion of their lives, will spend less on personal care products, travel and in-person entertainment while spending more to purchase digital assets, such as clothing, real estate, art, experiences and entertainment. The question is how people will purchase these digital assets. Some might say with debit, credit or crypto but surely a digital wallet will be needed to own, store these assets and that will drive financial inclusion and adoption in society. That’s my take and it’s just a matter of when, but we are closer, frictionless solutions are creating an opportunity to disrupt such as Minteo, Qurable, Crossmint. The financial institutions that prepare themselves for this eventuality will capitalize on the opportunity and prevail.
Who will own those digital assets, the person or the platform? First, what’s the difference between a digital asset and an NFT? NFTs are unique digital assets with a smart contract that serves as an authenticity certificate owned by the person, can be traded on multiple platforms and have numerous use cases and industries (art, sports, music, governance, tokens). Digital assets nowadays are owned by the platforms: elements like skin or weapons in games are not the property of the player but are owned by the Microsofts,Sony, even though the player purchased them. Instagram followers are owned by the platform not the influencer, since he/she cannot migrate them to other platforms.
In summary, I believe a combination of crypto, fintech, and the Metaverse will help drive financial inclusion in the region. A clear regulatory framework is needed and education is key to increasing adoption of financial products. Fintechs need to incorporate crypto and digital assets into their product offering as some are doing, including Stripe, Revolut and Bitso.
Fintechs also need to consider crypto, digital assets and Metaverse behaviors in their underwriting models with AI and machine learning expanding their traditional sources of information, such as a credit bureau,social media or Telco, to help increase financial adoption among the unbanked population.
I co-founded Brainlup.com (Web3 & NFT Lab), where we help companies, brands, artists, and influencers enter this new Web3 space of decentralization, metaverses and NFTs; to mention some: El Chavo del 8, Roberto Cortazar, Nicolás Felizola. We have partnered with digital asset solutions provider 33X (they partnered with Arca Digital Asset Management to cover Latin America) to develop a Crypto/Web3 hub for news and education in Spanish called BoredMedia.