Others believe it is necessary to protect citizens, corporations, and nations from unknown threats as a result of money laundering.
KYC greatly impacts local banks in smaller economies as untrusted state-run identity systems leave many people unbanked worldwide. After the 2008 financial crisis, compliance rules imposed heavy costs on banking institutions leading to a reduced financial presence in countries. FinCEN (Financial Crimes Enforcement Network) flags trillions of dollars in suspicious transactions to authorities from customers. Some believe these safeguards are ways for the government to keep digital startups from thriving due to insurmountable costs. However, as a result of the global pandemic, the tides are shifting.
The Rise of Digital Currency
What if there was a way for customers to authorize transactions without the need of a bank? Bitcoin, invented in 2009 for individuals to use digital currency as a medium to purchase merchandise, trade, and send/receive money anonymously free from any country’s regulation. Many believe bitcoin as a saving medium to keep the unbanked banked and promote financial inclusivity. We believe that this may be true for countries with weak and/or untrusted state-ran governments. In the US and other developed countries, fostered trust in banking systems as a result of consistent revisions of federal regulations have minimized bitcoin primarily as a trading medium. In more undeveloped countries with lack of trust in their banking systems, cryptocurrencies have become an ideal virtual wallet for citizens to orchestrate transactions electronically.
What if there was a way for customers to authorize transactions without the need of a bank? Bitcoin uses digital currency as a medium to purchase merchandise, trade, and send/receive money anonymously free from any country’s regulation. Many believe bitcoin is a saving medium to keep the “unbanked” banked and promote financial inclusivity.
We believe that this may be true for countries with weak and/or untrusted state-ran governments. In the US and other developed countries, trust is fostered in banking systems due to federal regulations that have minimized bitcoin as a trading medium. In more undeveloped countries with la ack of trust in their banking systems, cryptocurrencies have become an ideal virtual wallet for citizens to orchestrate transactions electronically.
Safeguarding Currency Transactions
PayPal, a pioneer in digital currency, has granted its users the ability to use bitcoin and other cryptocurrencies on its platform. However, Pay Pal only allows users to transact cryptocurrency they own.
Cryptocurrency cannot be
- Purchased from PayPal;
- Transferred to other accounts on/off PayPal;
- And most importantly users do not have control of the private keys.
Although PayPal has taken a huge step in the digital currency arena, individuals cannot send money to others. However, they can purchase items with the cryptocurrency they already have linked to their account. According to cryptocurrency enthusiasts, this illustrates that cryptocurrencies no longer belong to PayPal’s customers.
There are many skeptics who believe cryptocurrencies will not serve as a tool to foster financial inclusion. Ajay Banga, CEO of Mastercard, “believes that bitcoin cannot be an inclusive currency based on its volatility”. However, volatility exists in currencies around the world based on economic market conditions, political instability and interest rate differentials.
Improving the System
We agree with Mr. Banga regarding Bitcoin and other cryptocurrencies. The focus should be on improving the current systems that we already have in place. Our recommendations to enhance the system are to change the requirement guidelines and procedures, such as:
- Require annual reviews for AML guidelines and broker-dealers
- Test compliance procedures to improve state-run identity systems which improves the banking system for individuals in smaller economies.
- Mandate procedures and preparation to improve the everyday experience.
