Banks are expensive and inaccessible for many, especially for the poor. “Not only is banking not for everyone, accounts are inaccessible to about half of the world. People are too poor, live too far from a bank, or don’t have the required documentation,” according to CNN. As a result, billions of people in the world are unbanked or underbanked. As a result, these individuals suffer financial exclusion and limited economic growth.
Credit unions, on the other hand, provide most of the services that banks do, but the services are usually cheaper. Hence, credit unions are better poised than banks to attract those excluded from financial services. In effect, credit unions could exploit the virtues of Bitcoin and its underlying blockchain technology to develop faster, safer, and more affordable financial products, such as remittances.
Credit Unions vs. Banks
Banks are for profit; credit unions are not-for-profit. The purpose of banks is to increase shareholders’ profits. Banks are cumbersome, expensive, and complicated. As a result, almost one-third of U.S. households is underbanked or unbanked, according to a 2013 FDIC survey.
On the other hand, credit unions are cooperatives that offer most of the same financial products offered by banks, but they focus on satisfying the financial needs of a predetermined group of people. To join a credit union, you must be associated with the group that the credit union is serving, such as a company, organization, or location. Members of a credit union elect the board of directors. This guarantees that the credit union acts to the benefit of its members.
Credit unions are more advantageous to people of limited financial resources, because fees and loan rates are typically lower, according to the MyCreditUnion website; and, deposit dividends and interest rates are usually higher than those offered by banks and other for-profit financial institutions. Regarding credit cards, credit unions also offer lower rates.
The World Council of Credit Unions (WCCU) explains:
“[Credit Unions’] Service to the poor is blended with service to a broader spectrum of the population, which allows credit unions to offer competitive rates and fees.”
To reach emerging markets, one of credit unions’ primary services is remittances. In this regard, the WCCU’s objective is to help credit unions by furnishing them with safe and inexpensive money transfer products. Thus, credit unions can allow their members to avoid the exorbitant fees charged by banks for money transfer services.
Unfortunately, credit unions are decreasing in number. As of March 2015, the number of remaining credit unions was estimated at 6,424, according to the Credit Union Trend Report, issued in May 2015. It also stated:
“Year-to-date the number of credit unions declined by 89, greater than the 60 lost in the first three months of 2014.”
Credit unions’ membership is also declining. One of the main causes for the decline in membership, particularly of small credit unions, is attributed to the lack of suitable technology, as reported by CUToday.
So, if credit unions are to flourish again, they must reinvent themselves. To succeed in this reengineering effort, credit unions could take advantage of Bitcoin and its blockchain technology to create new, better, and cheaper services.
One area of growth and innovation is remittances. In this regard, credit unions are uniquely situated to make a difference and attract many consumers now excluded from financial systems. For example, credit unions can use bitcoins for remittances, instead of fiat currency wire transfers. The reduction in costs would be substantial, benefiting many, especially poor immigrants and foreign workers.
In fact, there are already several startup companies providing remittance services in bitcoin, such as Rebittance, Rebit and Bitspark. However, as illustrated below, it seems that regulators are hesitant or reluctant about allowing credit unions to do business with Bitcoin startups.
Credit Unions & Bitcoin
Perhaps the explanation is in a recent New York Times article titled, “Dream of New Kind of Credit Union Is Extinguished by Bureaucracy.” In it, Nathaniel Popper reports on Mr. Brewster Kahle’s tribulations in attempting to create a credit union for Internet Archive.
Based in San Francisco, Internet Archive is an online library. According to its website, Internet Archive aims to provide permanent online access “for researchers, historians, scholars, people with disabilities, and the general public to historical collections that exist in digital format.”
According to the article, the application process to open the Internet Archive credit union took 18 months. And, since its inception, “the credit union has faced a barrage of regulatory audits and limitations on its operations, first when it tried to work with low-income immigrants in New Jersey and especially after it looked at providing banking services to Bitcoin companies that were being rejected by other banks.”
The National Credit Union Administration (NCUA) had granted authorization to the Internet Archive credit union to provide services to Bitcoin startups. Then, according to Internet Archive, the NCUA revoked this authorization, causing great economic distress, forcing into bankruptcy one of the three Bitcoin startups that the credit union was servicing. As a consequence, Mr. Kahle is now abandoning the project.
It is a pity that a credit union and Bitcoin partnership had to be dropped because of regulatory bureaucracy. Hopefully, regulators’ attitudes in this regard will soon change, because by exploiting the inherent virtues of Bitcoin and its blockchain technology, credit unions could develop effective, fast, and low-cost financial products for the benefit of many, particularly, for those who are unbanked or underbanked.
What are your thoughts on credit unions using Bitcoin and its blockchain to develop better financial services for their members? Let us know in the comments below!
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