On and off-ramps
We talk a lot about how the Stellar network is serving the “unbanked.” The network was created to facilitate financial access, and that means bringing useful financial services to people who face difficulties accessing them otherwise. Yet the question still remains: What circumstances lead to people becoming unbanked in the first place?
First, let’s define a few terms. The term “unbanked,” refers to people who are not served by a bank or similar financial institution in any way. The “underbanked,” meanwhile, refers to people who may have a bank account but often rely on alternative financial services such as unofficial money changers, informal agents, and payday loans rather than on traditional loans and formal accounts to manage their finances and fund purchases. When someone is unbanked or underbanked they have fewer options for how to make payments, borrow and save money, or invest. This often means that the person pays more for poorer quality services, is more likely subjected to fraud and scams, and faces significant limitations to economic prosperity.
It’s time to level the playing field.
On and off-Ramps on Stellar help bridge the gap between services the unbanked have available to them and those available in traditional finance by connecting them to the digital economy and blockchain-based financial services. For example, Vibrant, a mobile wallet that can be used with Ramps to cash-in and -out, allows users who do not have a checking or savings account to still hold value in a digital account. Asset tokenization has the potential to allow a broader swath of people to access a wider variety of assets. And while many people are simply unaware of the types of products available in traditional finance, easy-to-use blockchains like Stellar present a fresh opportunity to access financial services without the baggage of a system that was never built for everyone.
Here's a reality check. Stellar alone can't plug the entire global gap. While far-reaching, Stellar-based services don't yet extend to every unbanked and underbanked individual. There are many ways people can become unbanked or underbanked, each requiring their own context-informed solutions. In fact, there are about 1.4 billion people globally who are unbanked according to the World Bank, and Stellar, with 300,000 off-ramp locations for stablecoins issued on the network alone, only reaches a small fraction. Though Stellar goes far, there’s still a lot of work to do.
Reasons for why someone may be unbanked differ significantly between different geographic regions and demographic groups, so it’s difficult to make accurate generalizations. However, existing data suggest a few major reasons. A significant portion of people who are unbanked are skeptical of the financial institutions they have experience with: 33% of unbanked Americans say their behavior is driven by a lack of trust, for example. About 40 percent of unbanked Americans say they’re too poor to have a bank account, and can’t meet the minimum balance. And 30% cite high bank fees as a primary reason as well. Other common reasons in the US and abroad are a history of unpaid or overdraft fees, bounced checks and missed payments, and generational gaps in financial and technical literacy.
According to the FDIC, 4% of Americans are long-term unbanked (unbanked for a year or more) and 0.5% are recently unbanked, meaning they lost their bank account within the past year. Privilege, too, plays a significant role. 2.1% of white households in the US are unbanked, whereas it’s 11.3% for Black households and 9.3% for Hispanic households. 15.9% of single-mother households are unbanked, compared to 1.8% for married couples. Subprime loans are 5x more likely in Black neighborhoods than in white neighborhoods, largely because of inability to access more dependable forms of credit. 30% of LGBTQ+ adults in the US report experiencing discrimination from financial services. The percentage of unbanked Americans is lower than the global trend, though US data is used here as the most comprehensive.
Internationally, many of these issues are the same. Inconsistent device ownership, access to electricity, reliability of the mobile grid and affordability of mobile data can make it difficult to access banking services as well. There is often a severe global gender gap in financial access as well. According to the World Bank, 74% of men in developing economies have a bank account, whereas only 68% of women do — a more severe gap than in the United States. Spikes in gender violence can broaden this gap. According to The World Bank Findex, more than half of the world’s unbanked adults live in seven economies: India, China, Pakistan, Indonesia, Nigeria, Bangladesh, and Egypt.
Many Stellar Ramps begin to solve these problems, by giving people without a bank account options to convert cash into crypto, or just receive payments, without going through a traditional financial institution. Stellar Aid Assist, for example, is a portable solution that helps aid organizations send digital assets to people in emergencies and protracted crises who can then safely transport and access funds when they need them, whether they are moving across borders or forced to flee. Moneygram helps people convert cash to crypto if they want to be able to send transactions via the internet but don’t have a bank account to link to online services. And Stellar’s global ramps network connects to many businesses specializing in remittance payments, which can be a significant part of the economy in countries with large numbers of unbanked individuals and the largest source of capital for loans in emerging markets.
These programs are set to expand. Stellar Aid Assist, which was first piloted in Ukraine by the UNHCR and the IRC, is being deployed in additional countries and by more humanitarian organizations. Moneygram continues to expand where users can cash-out and cash-in to the digital economy with Stellar, while an increasing number of remittance services join Stellar’s network, and connect more migrant populations to digital finance, every day.
These are just a few examples of the global reach of on and off-ramps on the Stellar network. To learn about Stellar ramps, visit the Stellar Development Foundation website.