How Does Web3 Aim To Promote Financial Inclusion?

Introduction.

Financial inclusion has been a buzzword for years, but the truth is that millions of people worldwide still lack access to essential financial services.

Basic needs like banking, credit, and insurance, which many of us take for granted, remain out of reach for roughly 1.7 billion people globally, according to the World Bank.

A huge part of this is due to traditional financial systems—many individuals are either too far from physical banks, lack proper identification, or simply don’t have enough money to meet minimum account requirements. Web3 technology is trying to change this picture.

Web3, often described as the next phase of the internet, goes beyond simply providing decentralized networks for information sharing; it aims to build financial services that anyone with internet access can use.

By removing the gatekeepers—banks, credit card companies, and other intermediaries—Web3 offers a way to provide financial tools to people who have been excluded from the current system.

This promise of “banking the unbanked” is one of Web3’s most intriguing goals, but understanding how this technology intends to make such an impact requires us to take a closer look at what Web3 is and what it brings to the table.

Let’s dive into Web3’s potential to reshape financial access and help people everywhere connect with services they need to improve their lives.

Understanding Web3 and How It’s Different

To see how Web3 might promote financial inclusion, it’s helpful to understand what makes Web3 different from the current internet, often called Web2.

The internet we mostly use today is largely controlled by major corporations and central authorities. While you can post, share, and consume vast amounts of information, a lot of data is collected and monetized by companies, and many financial services remain out of reach for those without a bank account or proper identification.

Web3, on the other hand, is all about decentralization. Built on blockchain technology, Web3 applications use smart contracts—self-executing programs that run automatically when certain conditions are met.

This allows for peer-to-peer transactions without needing a central authority like a bank to approve and process them. People can exchange assets, make agreements, or set up financial transactions without middlemen.

Blockchain technology, the foundation of Web3, also brings transparency and security to the table. Because all transactions are recorded on a public ledger, it’s nearly impossible to alter or hide information, creating a trusted environment for people to engage with financial tools directly.

How Does Web3 Aim To Promote Financial Inclusion?

Here are a few ways Web3 is shaping up to make a real difference in the realm of financial inclusion:

1. Access to Banking for the Unbanked.

Many Web3 applications don’t require traditional identification or a minimum deposit to set up an account, unlike conventional banks.

All you typically need is a smartphone or a computer with internet access, plus a digital wallet—an app that can store and manage digital assets.

Digital wallets offer users a way to safely store assets, transfer money, and interact with decentralized finance (DeFi) applications, which often provide banking-like services without a bank.

For someone in a rural area without access to physical banks, a digital wallet could serve as their primary financial tool, helping them save, send money, or even take loans—all through Web3-based platforms.

2. Affordable Cross-Border Payments.

Cross-border payments, or international money transfers, are notoriously expensive and slow with traditional banks.

In some cases, fees for international transfers can reach 10% of the amount being sent, and transactions can take several days to clear. Web3 simplifies this by allowing users to send digital assets globally in real-time, with minimal fees.

This makes a huge difference for migrant workers who often send money to their families back home.

With Web3, these remittances can be sent instantly, with much lower fees, maximizing the amount that reaches the recipient.

3. DeFi: Decentralized Financial Services

One of the most promising aspects of Web3 for financial inclusion is DeFi, which aims to recreate financial services—like lending, borrowing, and saving—without the need for traditional banks.

In DeFi, lending and borrowing occur directly between users, and interest rates are often more favourable than those from conventional banks, since middlemen are eliminated.

Imagine a small business owner in a developing country who needs capital but can’t get a bank loan due to a lack of credit history.

With DeFi, they could use their digital assets as collateral and receive a loan in cryptocurrency. This loan can help them grow their business and create economic opportunities they wouldn’t have otherwise.

4. Transparent and Trustworthy Transactions

Trust is a big factor in financial inclusion. Many people don’t use financial services because they don’t trust traditional banks, often due to corruption or hidden fees.

Web3’s transparency helps solve this issue. Since all transactions are recorded on a public ledger, it’s easier for users to verify the terms of their transactions.

For example, if a family wants to save money for their child’s education, they can do so confidently on a Web3 platform, knowing that their savings are secure, visible, and accessible only by them.

5. Earning Opportunities in the Global Economy

Web3 also opens up new earning opportunities by allowing anyone to participate in a global digital economy.

Many Web3 platforms provide opportunities for “microwork” (small online tasks), freelance jobs, or participation in play-to-earn games where users can earn digital assets.

People in developing countries can leverage these opportunities to earn cryptocurrency, which they can then use to buy goods, pay for services, or even save for the future.

This provides a pathway for people who might not have traditional job opportunities to engage in the global economy directly.

Challenges Web3 Faces in Achieving Financial Inclusion

Of course, Web3 is no magic solution, and it has its own set of challenges to address before it can fully promote financial inclusion. Here are a few hurdles:

1. Accessibility of Technology: Not everyone has access to reliable internet or a smartphone, which are necessary for using Web3 applications.
2. User Education: Blockchain, digital wallets, and cryptocurrency can be confusing for new users. Many people might not feel comfortable navigating this space without clear guidance and support.
3. Regulatory Concerns: Governments worldwide are still figuring out how to regulate cryptocurrencies and Web3 platforms. Some countries have even banned crypto entirely, which makes Web3 adoption difficult for residents in those regions.
4. Security Risks: Although blockchain technology is generally secure, users still need to be vigilant about scams and hacking attempts. New users may be especially vulnerable if they don’t fully understand how to protect their digital assets.
5. Volatility of Cryptocurrencies: Cryptocurrencies, a big part of Web3, can be highly volatile. This fluctuation can create uncertainty for people who want to store their savings in digital assets but don’t want to risk significant losses.

FAQs

1. What exactly is Web3?

Web3 is the next generation of the internet, built on decentralized networks rather than centralized ones. It allows users to interact directly with applications and other users without intermediaries, mainly using blockchain technology.

2. How does Web3 provide banking services without banks?

Web3 leverages DeFi (Decentralized Finance) platforms that run on blockchain networks. These platforms offer services like lending, borrowing, and savings through smart contracts, allowing people to access financial services without needing a bank account.

3. Is cryptocurrency required for using Web3?

While many Web3 applications involve cryptocurrency, some don’t require you to buy or hold it. However, having a digital wallet with cryptocurrency can enhance access to various services within the Web3 ecosystem.

4. What makes Web3 more accessible for people without formal identification?

Web3 applications often don’t require government-issued IDs for access. Instead, users typically create digital wallets, which don’t need formal identification, allowing individuals without traditional IDs to access financial services.

5. Is Web3 secure?

Yes, Web3 is generally secure, but users must still be careful. Blockchain technology is secure by design, but users must protect their digital wallets and private keys to avoid scams and hacking.

Conclusion

Web3 brings a lot of exciting possibilities to the table for making financial services accessible to more people around the world.

By offering decentralized, secure, and low-cost ways to save, borrow, and transfer money, it could empower millions who’ve traditionally been left out of the financial system.

However, there are still hurdles to overcome—technology access, education, regulation, and security, to name a few—that need addressing for Web3 to fulfill its potential.

The question then remains: How do you think Web3’s potential for financial inclusion will evolve as technology and regulations develop?