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Crypto — the most accessible banking solution for Latin America?

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Note: The original post on Medium can be seen here

The most accessible bank in Latin America — crypto?

I have been living in Latin America for the past 3 years, in Colombia and later in Mexico. My life experiences there gave me an entirely new perspective on the need for equitable and accessible banking.

I wrote about some of the stories I came across in Medellin, Colombia that really open my eyes and showed me the importance of accessible banking services.

My professional experience of being within web3, crypto and finance, came crashing together with my lived experience in Latin America. I saw a world where financial inclusion and equitable access to banking could be achieved through a mobile first — borderless, low cost, and easy …bank, but redefined.

Recognizing that blockchain and crypto was not restricted by borders, ID, fees, and institutional barriers and corruption. It was a tool with the potential to fundamentally change the barriers of entry to banking.

My life in Latin America also taught me two other really important things, and they were:

  • The use of mobile phones (phone penetration is exceptionally high, and use/engagement with apps like Whatsapp, Instagram and TikTok are unmatched).
  • Holding US dollars is seen as a good thing culturally. The most secure store of value.

That is why our team created Decaf.

Mobile, Easy and Borderless. Banking Redefined.

We believe that being mobile-first, easy and borderless will improve accessibility and change the meaning of being banked.

We have built an easy-to-use wallet that allows users to:

  1. Set up instantly, send, receive and view transactions.
  2. Top up with Stable-coins (like USDC) from cash (pesos) at places like cafes, restaurants, grocery stores that elect to be an onramp.
  3. Businesses can link their sales from our Point Of Sale system — Decaf Pago (which allows their customers to use mobile ordering and pay with cash, card, stable-coins and crypto).
Easy to set up, send, receive, and onboard with cash at any onboarding location.

Our team’s first goal is to give everyone who has a mobile phone a bank account, then it is to make every corner store, cafe/restaurant, and grocery store a point of access. An onramp from cash to crypto.

We are doing this while ensuring that security is maximized and abuse or improper use of banking services is minimized through proven strategies, such as having levels of KYC, and detection of abnormal use.

Regulatory framework in Latin America will likely follow the US

Last week the Whitehouse released their executive order on crypto and I think it was important to highlight the priority of promote equitable access and financial inclusion/accessibility. It is a strong indiction of the direction that other regions around the globe will follow.

Particularly, those that can benefit from financial inclusion and accessibility the most. Such as Latin America.

The Whitehouse executive order on crypto stated that a key measure was to provide “[E]quitable Access to Safe and Affordable Financial Services”, highlighting :

“Such safe access is especially important for communities that have long had insufficient access to financial services.”

Whitehouse promoting Equitable Access to safe and affordable financial services

The Whitehouse has explicitly recognized the potential that digital assets (crypto/stable-coins) and blockchain technology have to create an alternative financial system that is unprecedented in its accessibility. Considering its advantage at the intersection of security, costs, and speed over traditional institutions/solutions.

Every corner store, restaurant, and cafe is like a Western Union (with less fees)

Imagine being able to walk into a venue where you ask to top up your wallet with stablecoins. You give them cash (in pesos for example), and they send you the equivalent in stablecoins to your wallet instantly. All facilitated by a mobile app.

Now every small business can be an onramp to crypto — and any business can become an access point. It becomes a decentralized banking service, giving the potential to allow anyone to have a wallet and turn their cash into stablecoins. This now gives everyone the ability to have a bank account, it’s banking, but redefined and far more accessible.

Users can have digital wallets where users can store stablecoins, save/earn, and spend on everyday things.

Not only can these venues become onramps. They can also accept payment of stablecoins and crypto, at a fraction of the cost and time as traditional payment/settlement systems.

Our broader goal is to allow those who have previously been unbanked and underbanked to have a more accessibility to holding and transferring value and creating wealth. We see it not only to serve the underserved, but just to be a better banking service for all.

Why use stable-coins vs US dollar cash?

Cryptocurrency stable coins are digital tokens that are pegged 1 to 1 with the value of a chosen currency, like the US dollar. The US dollar has been used as a store of value that is typically more stable than currencies in Latin America, in some countries it can be the preferred value of exchange over the local currency, like in Venezuela.

However, there is the problem of supply holding USD as cash or in bank accounts is in short supply or difficult/impossible to obtain.

A few examples:

  • Right now, in Argentina inflation is around 50% and the Government restricted the purchase of USD to $200 per month and it has resulted in a USD black market where the price of 1 USD can be up to double 200% the price in Argentinian pesos.
  • Brazil it has had inflation of 10% and a strong devaluation against the USD, like most of Latin America during the pandemic and uniquely holding crypto USD (stable coins) is better than fiat USD:
    “Brazilians have incentives to purchase crypto instead of U.S. dollars to hedge against inflation or devaluation. When acquiring foreign currency, Brazilians are forced to pay a tax on financial operations — IOF is its acronym in Portuguese — that ranges between 1.1% and 6.38%. The tax does not apply to stablecoins. Moreover, the Brazilian Central Bank prohibits locals from saving U.S. dollars in a domestic bank account.”
  • In Venezuela hyperinflation estimated to reach 1,000,000% and it’s currency is too volatile to use, it’s currency was devalued by it’s own government against the USD. In fact, only 1 of every 1000 emitted bolivares is in cash, leaving unbanked Venezuelans with almost no choice but to use dollars. While citizens are practically required to use US dollars, they are in short supply and digital bank accounts with USD accounts for remittances have excessive requirements to set up (like on Zelle). Additionally, US dollars can be bought on the black market but are sold at huge premiums. With all this considered, crypto USD stable-coins are a much fairer and equitable alternative to USD cash.

Latin Americans are leaders in using cryptocurrency

These are some of the reasons that have driven Latin America to be the continent where people already hold and use cryptocurrency the most in the world, and will the region will continue to lead and drive innovation in this space.

Latam has the highest use of any continent

And most of that is retail holdings, so used for everyday savings and spending.

Most crypto in Latam is held by consumers and not institutions

Reducing transaction costs of Remittances

During the pandemic, remittances using cryptocurrency were seen increasing up to 400% more.

According to Chainalysis estimates, remittances sent from abroad to Latin American countries through cryptocurrencies went from about 100 million dollars per month between October and April 2020 to almost 400 million per month between April and May 2021.

Latin America is growing in crypto adoption and digitization

Latin America received 9% ($353 Billion) of the total amount of cryptocurrencies shipped in the world between July and June 2021.

The majority of transactions in the continent happen in cash, and this is largely because the cost of banking and lack of infrastructure, which makes it some of the most inaccessible in the world. With the likes of Nubank, Bitso, Mercado Libre, Nequi, Daviplata, dLocal, PIX, and other alternative banking services we are seeing innovation in the fintech space happen at an accelerating rate.

Techcrunch reported that “with the region’s thirst for innovation, the market is expected to expand nearly tenfold over the next decade”.

Additionally, paying for things on the mobile are increasing rapidly in Latin America and will continue to grow at a rate of 30%-40% annually until 2025.

Mobile commerce is in hyper-growth for the region

Which further highlights the importance of a mobile first solution.

What has worked in the past for increasing access to banking? Mobile.

Kenya provides the best example of seeing the unbanked gain access to a bank through M-Pesa — which allowed anyone with a mobile phone to have a bank. In 2006 Kenya’s banked population was 14%, and today 72% use mobile money. “When mobile money succeeded in Kenya, it lifted about a million people out of poverty.”

The learnings from Kenya should be applied to Latin America. Our team personally has seen the benefits of M-Pesa having been involved in the building of Hali Halisi in Kenya, which uses the payment solution.

You cannot ignore mobile penetration in this region

World Bank says that nearly 2 billion people globally lack access to conventional financial services. This number is largest in Latin America.

The reasons for this are that a lot of people need ID and documentation and don’t have it, or are in “banking deserts” and are far away from banking services, and finally they just don’t understand the benefits or don’t trust the banking institutions.

Typically it is not in the interest of banks to serve entire populations or communities and the best success of achieving greater accessibility to banking services has been seen outside of traditional banking, such as crypto.

Unique considerations for Latin America

We believe that it is critical for mobile-first banking solution to reduce the need of exchanging into fiat currency, and making utility for crypto. That is why we built Decaf Pago — so that you can buy everyday items with your crypto, like your groceries, or even just a coffee.

Decaf Pago Customer and Merchant view — Mobile ordering and payment including crypto (for businesses that want to have an easy/instant POS + take crypto payments)

We are excited about the future of redefining what it means to be banked with mobile and cryptocurrency, because we believe that it is good for everyone when banking is more accessible for all.

We believe it is as necessary and linked to tackle both sides of the coin

We see that in order for a crypto/stablecoin solution to build a better and more equitable economy for Latin America— it needs to be solving both of these problems of accessibility and utility, and that is why we are building Decaf as a mobile first, borderless bank, bring real world utility to crypto.

We believe we will see the future of banking will play out in the next few years in Latin America, and we aim to ensure that it is a more equitable one. So stay tuned.