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As we reflect on the third anniversary of the COVID-19 pandemic, it’s worth taking a closer look at how it has impacted society beyond the regular assessments of the healthcare system, partisan politics, and the legacy of the lockdowns. While the pandemic has saddled the world with many unfortunate and enduring developments, there is one area where undeniable, positive progress has been made: a significant increase in global use of basic, digital financial infrastructure and services.
The pandemic accelerated a world already migrating to digital products and services when behavioral changes across society shifted as a result of lockdown measures. Fortunately, this resulted in a drastic increase in access to the global financial system, and politicians and regulators across the world should embrace the potential of new technologies that further this cause. Crypto, and decentralized finance (DeFi) in particular, should be tier-one options for any campaign to bring more financial access and freedom to global populations.
At the outset of the pandemic, the need for contactless commerce drove the increased adoption of virtual services, allowing everyday people, business owners, and the government to maintain business as normal, or at least as normal as the unusual circumstances allowed. Generally, as a society, we were lucky. For many people in OECD countries, a digital shift was simple and did not disrupt life. For the rest of the world, progress and adoption remains uneven. According to the World Bank, globally, some 1.4 billion adults remain unbanked. These populations are often the hardest to reach – and are more commonly women, poorer, less educated, and living in rural areas.
The closure of bank branches during COVID would not matter much to many in this group — there were no branches for them to begin with. However, of these 1.4 billion people, it is reported that more than 1 billion have access to a mobile, internet-connected phone. It is there that fintech firms have focused their efforts to increase their user base, and it has been, at times, successful. It is estimated that more than one-third of adults in developing economies paid a utility bill directly from a bank account for the first time since the beginning of the pandemic. In India, soon to be the world’s most populous country, some 80 million adults made a digital merchant payment for the first time since COVID hit. These are encouraging figures and show the natural progression of financial access in an increasingly digital world. But there is much to be done to supercharge these rates of engagement, and give people tools that go beyond simple account ownership.
A robust financial system should give all citizens a chance to save, make payments, obtain manageable credit, and mitigate economic risks local to their town, country, or region. It is here that policymakers should look to incorporate decentralized financial protocols into their efforts to bring more opportunity to their citizens. As opposed to services provided by the centralized, legacy financial world, DeFi is open to essentially anyone with an internet connection. This openness, paired with the transparency of the DeFi systems themselves, could be a boon to those living in areas defined by corrupt governments, unstable economies and a lack of robust, traditional financial institutions. Likewise, global citizens who lack formal identification, or lack official residency status, could use DeFi protocols to begin to build a stable financial future. Policymakers and politicians should view DeFi as a tool, one to be wielded with the correct safeguards, as they endeavor to bring more of their citizens into the financial fold.
Politicians and regulators can play a crucial role in promoting the growth of DeFi by providing a clear and supportive regulatory framework. One approach, embraced by SEC Commissioner Hester Peirce is a sort of regulatory sandbox, where DeFi developers could deploy, test, and develop their products without the risk of running afoul of unclear current regulations.
The DeFi ecosystem also has much work to do to gain market share in unbanked populations. Simplifying user products, building new products that meet the needs of the unbanked, and emphasizing the benefits of a peer-to-peer financial system for those who are not “crypto native” are important next steps.
An intentional embrace of DeFi in any financial access campaign is vital. More than one billion people currently hold in their hands the device that could bring them closer to financial freedom and expanded life possibilities. The natural shift to digital financial services during the COVID years shows the promise of even greater adoption if we are intentional about leveraging new types of financial technology, including DeFi. COVID gave the world an unintended benefit: a view of a truly global financial system. Let's not waste the chance to fulfill that vision by neglecting the next wave of financial technology.