Blockchain Revolution

Prosperity Purgatory: An Exercise in Futility
For centuries, banks have relied on network effects. Each successive customer,
branch, product, dollar in, and dollar out increases the value of the bank’s network.
However, building these networks has come at a cost. Specifically, the cost of
acquiring a profit-turning customer has only increased. If a prospect’s money won’t
earn its keep, the bank won’t be interested in keeping it. Thus, banks have little
economic incentive to win customers in the bottom half of the pyramid. According to
Tyler Winklevoss, banks don’t serve most of the world and have no existing plans to
serve them. However, new technology could remove that step. He said, “A lot of

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African countries leapfrogged the infrastructure of landline telecoms with cellular.
They skipped that step. Blockchain will have the greatest impact in areas where the
payment networks don’t exist or are very poor.”
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Blockchain will push many nascent
initiatives, such as mobile-money service providers like M-Pesa in Kenya, owned by
Safaricom, and microcredit outfits globally, into high gear by making them open,
global, and lightning fast.
A bank is the most common financial institution, and so we will use it as an
example here. How do you open a bank account? If you live in the developing world
today, you will likely have to visit the branch in person. In Nicaragua, there are only 7
bank branches per 100,000 people compared with 34 per 100,000 in the United States.
Nicaragua looks well banked compared with many countries in Africa, where there
can be fewer than 2 branches per 100,000 people.
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So you will probably have to
travel a good distance to find a bank. You will also need to bring a government-issued
identity card, but that will be just as difficult to come by if you don’t already have
one.
In the developed world—say, the United States—you need to meet certain
requirements. While these requirements vary from bank to bank and state to state, you
typically need to deposit and maintain a $100 to $500 minimum balance. You also
need to prove your identity. Banks that do business in the States must comply with
stringent “know your customer,” “anti–money laundering,” and “anti–terrorism
financing” regulations.
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And so they must do more comprehensive background
checks on applicants before granting them an account. Ultimately, the bank is less
interested in evaluating your character than it is in complying with regulatory
agencies. That means a laundry list of requirements. First, you need a Social Security
card. Don’t have one? That’s usually enough to get rejected. How about a photo ID
like a driver’s license or passport? Don’t have one? You’re not opening a bank
account. Let’s say you have both a Social Security card and photo ID. The bank, just
to be safe, asks for a recent utility bill as proof of permanent residence or some proof
of a previous bank account. If you happen to be new to town, or staying with family,
or from an entirely unbanked region of the world, you’d likely fail some of these tests.
The bank doesn’t want you as a customer unless it can confirm your identity based on
various papered credentials. It’s not interested in knowing you as a well-rounded
person. It’s interested in knowing you as a set of checked boxes. Previous attempts to
streamline this process for immigrants and the poor, such as the New York scheme to
allow people to use their city ID cards, have failed.
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