A look into fintech's role in empowering the unbanked communities around the world, how far we've come, and what's still ahead.
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The financial revolution isn't happening in Wall Street's landmark buildings, it's exploding through smartphone screens in rural villages, urban apartments, and immigrant communities worldwide. And while traditional banks still ask for three forms of ID and a pristine credit score, fintech is rewriting the rules of who gets to participate in the global economy.
Here's the reality: 1.4 billion adults globally remain unbanked, locked out of basic financial services that most of us take for granted. In the U.S. alone, roughly 5.4% of households (about 5.6 million families) have no relationship with a bank or credit union. These aren't just statistics; they're people paying check-cashing fees, carrying cash everywhere, and building zero credit history despite working multiple jobs.
But here's where it gets interesting: fintech isn't just offering band-aid solutions. It's fundamentally disrupting how financial services work, creating pathways to economic participation that bypass traditional gatekeepers entirely.
From mobile banking apps that require no minimum balance to blockchain-based lending that ignores credit scores, technology is democratising finance in ways that seemed impossible just a decade ago.
The question isn't whether fintech can help the unbanked, it's already happening. The real question is how fast this transformation can scale and whether it can reach the communities that need it most.
Why so many people remain unbanked
Let's dive into the barriers that keep millions locked out of traditional banking. It's not just about money, though, of course, that’s a part of it.
The most obvious culprit? Banks themselves. Traditional institutions have built their entire business model around risk assessment, which typically means credit scores, employment verification, and documentation requirements that exclude huge swaths of the population.
If you're an immigrant without an established credit history, a gig worker with irregular income, or someone who's been burned by predatory lending in the past, good luck getting a simple checking account with credit facilities.
Geographic accessibility plays a massive role, too. Rural communities have watched bank branches disappear at an alarming rate: since 2009, over 10,000 bank branches have closed across the UK. When the nearest bank is 50 miles away and you're working two jobs just to stay afloat, maintaining a traditional banking relationship becomes practically impossible.
Then there's the trust factor. Many unbanked individuals come from communities where banks have historically been extractive rather than supportive. Why would you trust an institution that charges overdraft fees designed to trap you in cycles of debt? For many, cash-only transactions feel safer and more transparent than navigating hidden fees and complex terms of service.
Digital literacy creates another layer of exclusion. While fintech promises mobile-first solutions, those solutions still require smartphone access, internet connectivity, and the technical knowledge to navigate increasingly complex apps. For older adults or those without consistent internet access, digital banking can feel more like a barrier than a bridge.
The demographic impact tells the whole story: immigrants, young adults building their first financial identity, gig workers whose income doesn't fit traditional employment models, and rural populations where infrastructure lags behind urban centres. These aren't fringe communities, they represent the fastest-growing segments of the workforce.
Traditional banking's limitations
Here's the uncomfortable truth about traditional banking: it was designed for a different era, when employment was stable, credit histories were linear, and financial relationships lasted decades. Today's economy doesn't work that way, but banks haven't caught up.
The FICO credit scoring system perfectly exemplifies this disconnect. Created in 1989, it treats credit like a single number that defines your financial worth, ignoring factors like consistent rent payments, utility bill history, or mobile phone payment patterns. If you've never had a credit card or traditional loan, you're effectively invisible to the system that determines whether you can access basic financial services.
Fee structures reveal even deeper problems. The average overdraft fee has climbed to $35, while monthly maintenance fees can easily cost $200+ annually for basic checking accounts.
For someone living paycheck to paycheck, these fees aren't just inconvenient, they can be financially devastating. Banks profit billions annually from overdraft fees alone, creating perverse incentives to trap rather than support their most vulnerable customers.
Bureaucracy adds another layer of exclusion. Opening a bank account requires documentation that many people simply don't have readily available: proof of address, employment verification, Social Security numbers, and often a minimum deposit. For undocumented immigrants, frequent movers, or those between jobs, these requirements create insurmountable barriers.
Traditional banks also struggle with personalisation at scale. They're built to serve middle-class customers with predictable income patterns, not gig workers whose earnings fluctuate wildly or small business owners who need flexible lending options. The result? Financial products that don't match real-world financial lives.
How fintech is changing the game
Sure, fintech isn’t a cure-all, but it is revolutionising finance by flipping the model: instead of forcing people to fit outdated systems, it builds systems that fit how people actually live and work.
Mobile banking & digital wallets
Mobile banking apps like Chime, Venmo, and Cash App have obliterated traditional barriers to entry. Chime offers fee-free banking with no minimum balance requirements and early direct deposit features that get workers paid up to two days faster than traditional banks.
That might not sound revolutionary until you realise that for someone living paycheck to paycheck, getting paid two days early can mean the difference between making rent on time or facing late fees.
Venmo transformed peer-to-peer payments from a complicated wire transfer process into something as simple as sending a text message. Cash App went further, adding investing features, Bitcoin purchases, and small business payment processing to a single app that anyone can download for free.
Increasingly, platforms like Tap are also stepping in - not just as digital wallets, but as integrated ecosystems that combine spending, saving, and cross-border access for underserved users. These aren't just simplified versions of traditional banking, they're entirely different approaches that prioritise accessibility and user experience over profit maximisation through fees and complexity.
Peer-to-peer lending & credit building
The lending revolution is even more dramatic. Platforms like Avant, Earnest, and newer crypto-lending protocols are using alternative data sources and AI-driven risk assessment to make lending decisions that traditional banks couldn't even consider.
Instead of relying solely on FICO scores, these platforms analyse everything from social media activity to mobile phone payment patterns to assess creditworthiness. They're building credit profiles for people who were previously invisible to the traditional system, creating pathways to financial growth that didn't exist before.
Peer-to-peer lending removes banks from the equation entirely, connecting borrowers directly with individual lenders or pools of capital. This creates more competitive interest rates and more flexible terms, especially for borrowers who don't fit traditional risk profiles.
Micro-investment & wealth-building tools
Investment platforms like Robinhood, Acorns, and international players like Nutmeg have democratised wealth building by eliminating minimum investment requirements and complex fee structures. Acorns rounds up everyday purchases and invests the spare change, allowing people to build investment portfolios with literally pennies.
These platforms reimagine what investing looks like for people who aren't already wealthy. Educational resources, simplified interfaces, and fractional share ownership mean that someone making minimum wage can start building long-term wealth with the same tools previously only reserved for high-net-worth individuals.
DeFi & blockchain for financial access
Decentralised finance represents the most radical reimagining of financial services yet. Ethereum-based platforms allow people to lend, borrow, and earn interest without any traditional financial institution involvement. Smart contracts automatically execute financial agreements, eliminating the need for banks, credit checks, or geographical restrictions.
Crypto wallets provide financial services to anyone with a smartphone and internet connection, regardless of their documentation status, credit history, or location. While still nascent and volatile, DeFi protocols are processing billions in transactions and proving that alternative financial systems can operate at scale.
Benefits fintech brings to the unbanked
The advantages aren't just theoretical, they're transforming lives in measurable ways.
Accessibility leads the list.
Fintech services operate 24/7 from any smartphone, eliminating the geographical and temporal constraints that keep people away from traditional banks. Someone working night shifts or multiple jobs can manage their finances during a break, not during banking hours that conflict with their work schedule.
Affordability follows closely.
Most fintech platforms operate with dramatically lower overhead costs than traditional banks, allowing them to offer services with minimal or no fees. When you're not paying for physical branches, armies of tellers, and legacy IT systems, you can pass those savings to customers who need them most.
Speed transforms financial emergency management.
Traditional loan applications can take weeks while fintech platforms often provide decisions in minutes. When your car breaks down and you need to get to work tomorrow, that speed difference isn't convenience - it's survival.
Transparency. Transparency. Transparency.
Fintech apps typically show real-time transaction data, clear fee structures, and straightforward terms of service. No more surprise fees or hidden charges that drain accounts without warning.
Using data instead of old patterns.
Data-driven personalisation means financial products that actually match individual circumstances. Instead of one-size-fits-all banking products, AI-powered platforms can offer customised solutions based on spending patterns, income volatility, and financial goals.
Safety from the loan sharks.
Perhaps most importantly, fintech reduces exposure to predatory lending practices. Transparent algorithms and competitive marketplaces make it harder for bad actors to exploit vulnerable populations with payday loans and other extractive financial products.
Case studies & real-world applications
The real proof lies in how these technologies are working in practice across different communities and regions.
U.S. gig workers have embraced fintech payroll advances and flexible banking solutions. Uber and Lyft drivers use apps like Earnin to access their earnings before payday, eliminating the need for expensive payday loans.
DoorDash partnered with DasherDirect to offer delivery workers immediate access to their earnings plus cashback rewards on gas purchases = financial services designed specifically for the gig economy.
Africa's mobile money revolution provides the most compelling example of fintech leapfrogging traditional banking infrastructure. M-Pesa in Kenya processes more transactions annually than Western Union globally, allowing people to send money, pay bills, and access microloans through basic mobile phones.
Over 80% of Kenyan adults now use mobile money services, creating a more financially inclusive society than many developed nations.
Latin America's neobank adoption is exploding as traditional banks struggle to serve growing populations. Brazil's Nubank has over 70 million customers, offering fee-free banking and credit building to people previously excluded from traditional financial services.
Mexico's Clip provides small business payment processing to street vendors and micro-entrepreneurs who couldn't access traditional merchant services.
These aren't isolated success stories: they're proof of concept for global financial inclusion through technology.
Barriers fintech still faces
Despite the revolutionary potential, significant obstacles remain.
Digital literacy and smartphone access create fundamental barriers. While smartphone penetration continues growing globally, reliable internet connectivity and the technical skills needed to navigate financial apps remain unevenly distributed. Older adults and rural populations often struggle with interfaces designed by young urban developers.
Regulatory hurdles complicate expansion and innovation. Know Your Customer (KYC) compliance requirements, anti-money laundering regulations, and licensing requirements vary dramatically across jurisdictions, making it difficult for fintech companies to scale globally. Regulatory uncertainty around crypto and DeFi creates additional complications for even the most innovative solutions.
Infrastructure gaps in developing regions limit fintech's reach. While mobile money works well in areas with basic cellular coverage, more sophisticated fintech services require robust internet infrastructure that many rural and low-income areas still lack.
Crypto and DeFi adoption scepticism remains high, particularly among the very populations these technologies could most benefit. Volatility concerns, complexity, and association with scams and fraud make many potential users hesitant to embrace blockchain-based financial services.
Cultural barriers also persist. In communities where cash has been king for generations, shifting to digital-first financial services requires not just technological adoption but cultural change. Trust must be earned through consistent, reliable service over time.
What the future holds: innovations & inclusion
The next wave of fintech innovation promises even more dramatic transformation.
Artificial intelligence will enable hyper-personalised financial services that adapt in real-time to individual circumstances. AI-powered financial advisors will provide wealth management services previously available only to millionaires, while machine learning algorithms will create more accurate and inclusive credit assessment models.
Open banking regulations will force traditional financial institutions to share customer data with fintech competitors, accelerating innovation and competition. This means better services, lower costs, and more options for consumers who have been underserved by traditional banks.
Regulatory evolution will create clearer frameworks for fintech innovation while protecting consumers. Central bank digital currencies (CBDCs) may provide government-backed alternatives to both traditional banking and cryptocurrencies, potentially reaching populations that current solutions miss.
Blockchain-based financial identity systems could eliminate documentation barriers that currently exclude millions from financial services. Decentralised identity solutions would allow people to build financial reputations independent of traditional credit systems or government documentation.
The convergence of fintech with other technologies (Internet of Things sensors for supply chain financing, augmented reality for financial education, 5G networks for real-time global payments) will likely create financial services we can barely imagine today.
Conclusion
Fintech isn't just disrupting traditional banking: it's democratising economic participation on a global scale.
From mobile money transforming African economies to gig worker payment solutions in American cities, technology is proving that financial inclusion isn't just morally right, it's economically inevitable.
However, the transformation isn't complete, and significant barriers still remain. But the trajectory is clear: financial services are becoming more accessible, affordable, and aligned with how people actually live and work in the 21st century.
The most exciting developments will emerge from collaboration between fintech innovators, government regulators, and community organisations that understand local needs.
This isn't a zero-sum game between technology and tradition—it's an opportunity to build financial systems that serve everyone, not just those who were lucky enough to be born into existing networks of economic privilege.
The unbanked aren't waiting for permission to participate in the global economy. They're already using whatever tools they can access to build financial stability and opportunity. Fintech's job is to make sure those tools are powerful, accessible, and designed with their real needs in mind.
The financial revolution is happening whether traditional institutions join it or not. The question is whether we'll build a system that includes everyone or leaves millions behind. The technology exists. The demand is obvious. Now it's up to us to make financial inclusion a reality, not just a promise.
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When new to the industry, deciphering whether to invest in Bitcoin or a range of altcoins can be a tough decision. We’re here to sort this out in one quick personality quiz, pointing you in the direction of which crypto is best suited to your needs.
Choose option A or option B from the questions below and tally them up to find your answer at the end.
What are your investment goals?
A) You're tired of traditional investments and want a new simple and innovative way to invest. You're a long-term thinker with a no-nonsense strategy and will stick to your guns.
B) You’re not scared of risk and are looking for investments to actively trade. You like the idea of long term returns, but are happy to do your research and play the market.
What does your ideal lifestyle look like?
A) You're interested in maximizing your wealth so that you can live a happy life while you still can. You want to invest on your own terms and tap into these advantages without stress.
B) You're eager to learn more and be on the cutting edge of technology and all the endless possibilities and advancements it possesses. It's not just about material wealth for you, it's also about the community and opportunities to learn more about cryptocurrency and investing.
What are your thoughts on cryptocurrencies' place in the world?
A) You believe crypto will have a more significant role in the future, and you don't want to be left behind. You're looking for an investment with comparable growth potential, as well as industry-leading performance.
B) You believe that cryptocurrencies are essential for future-proofing your money, and you're eager to learn at your own pace. You're more interested in a diverse cryptocurrency portfolio than in established coins.
Are you a solo effort or a group project?
A) You are a self-starter who isn't afraid to follow your own path in life. You're comfortable collaborating with people who share your goals. You want something that is distinct from the rest and does not require any assistance to develop.
B) You're a sociable individual that thrives in a group. You're looking for something exciting that is both innovative and solution-driven. When it comes to progress, you think collaboration and experimentation are essential.
Results
If you chose mostly “A”:
You're Bitcoin. You're searching for a simple and secure method to grow your wealth, and you want an asset with the highest market value and valuation to assist you. If you want a deflationary, bank-busting store of value, Bitcoin may be your hidden weapon.
If you chose mostly “B”:
You're altcoins. You want a versatile investment that you can leave alone or put to good use as you get more comfortable with cryptocurrency. You may see yourself exploring new ways to generate passive income or even creating your own projects. Variety and staying at the forefront of cryptocurrency initiatives pique your interest.
If you’re straight down the middle:
Why not enjoy the best of both worlds? A diversified portfolio consisting of both Bitcoin and altcoins is just as likely to be successful, interesting and up your alley.
Disclaimer: This article is intended for communication purposes only, you should not consider any such information, opinions or other material as financial advice. The information herein does not constitute an offer to sell or the solicitation to purchase/invest in any crypto assets and is not to be taken as a recommendation that any particular investment or trading approach is appropriate for any specific person. There is a possibility of risk in investing in crypto assets and investors are exposed to fluctuations in the crypto asset market. This communication should be read in conjunction with Tap’s Terms and Conditions.
This year has proved to be an exciting one for the crypto adopters, with markets taking turns playing out to bulls’ and bears’ delights. Bitcoin crossed the $66,000 mark for the first time in history, and with that, a new data trend has emerged which has shone a light on a significant gap in the market.
Here we explore the vast potential of the integration of the corporate market into the crypto industry. Recent data has exposed the large gap between crypto trading taking place on major exchanges. It has been discovered that there is little trading activity between the retail or institutional type of trader, setting two extremes: retail investors trade hundreds to several thousands of dollars while institutional investors trade millions.
In other markets, this range is generally made up of family offices ,mid-to-large corporations, or high-net-worth individuals. However, in the crypto space it appears that navigating the $100,000–$500,000 trading bracket is not as common.
An Overview of the ever-expanding cryptocurrency market
According to a study conducted by Chainalysis, cryptocurrencies usage across the globe increased by 880% when compared to that of last year. Meanwhile, experts forecast that this number is likely to increase. In 2021, major companies across many industries have taken an interest or invested in cryptocurrency and blockchain.
Cryptocurrencies are becoming increasingly popular, especially among institutions. This demonstrates that interest is no longer restricted to individual crypto aficionado traders. Large financial firms like BlackRock and Goldman Sachs have invested in cryptocurrencies, showing the potential of this asset class.
Bitcoin and Ethereum have grown popular and should be perceived as a positive development as it is a necessary step for cryptocurrencies to achieve widespread adoption. Some experts predict that more large, multinational businesses will accelerate the adoption of blockchain technology in the coming months.
Accepting cryptocurrencies as payment is something to consider if you run a business. As cryptocurrency adoption grows, so is the number of merchants who accept it.
Bridging the gap
Several reasons why this corporate market is yet to engage in cryptocurrencies is believed to be due to the lack of trusted liquidity providers, reasonable pricing, banking partners or secure technology. If your company is interested in opening a corporate account enabling your business to accept crypto payment, transfer, billing, and trading, Tap can assist your venture getting started with cryptocurrencies.
Bridging the gap, Tap is launching a new service that will provide crypto exposure to this mid-range market through its trusted and verified mobile app. The new Corporate Account will provide specialised B2B services catered directly to companies looking to enter the world of cryptocurrencies.
Through these services, companies will be able to make and receive payments in the supported crypto and fiat currencies, enjoy reduced transaction fees through the native token XTP, as well as earn interest through the Earn feature. While the B2C market has become somewhat saturated, Tap Global has taken aim at the B2B market, providing an early entry, alongside transparent pricing, for corporate companies into the crypto sphere.
As the financial landscape continues developing at a rapid pace, the app serves to provide an early and seamless approach to the future of payments that we are fast approaching.
From “Risky Investment” to global reserve
While Bitcoin hasn’t entirely evolved into a global reserve currency (yet), it has undoubtedly emerged from the speculative asset it was considered to be just several years ago. As crypto continues to break into new markets, the corporate market is growing in interest at a steady pace and seeking a way to integrate crypto payment and investments into their businesses.
With a range of reliable and tech-forward products on the market, there is little doubt that the rate of crypto adoption will continue to grow. While Tap provides a space for early adopters and high-net-worth investors, the company also opens its doors to a wide range of individuals and corporations, no matter where on the scale of net-worth or transaction volume they might sit.
Now in its 14th year, the Emerging Payments Awards celebrate innovation and collaboration by recognising companies that have made significant impact in supporting and providing payment solutions for consumers and businesses.
It is one of the most recognized awards within the UK payments industry with an independent panel of 58 judges including this year:
· Anna Maj FinTech Leader, Senior Advisor, Truffle Capital, Senior Lecturer CFTE
· Jill Docherty [ of Business Development, UK & Ireland, Visa
· Martha Mghendi-Fishe Founder & Executive Board Chair, EWPN
· Mark Walker Co-founder & COO Editorial Director, The Fintech Power 50 and The Fintech Times
· Joanne Dewar CEO, Global Processing Services
· Nikki Evans CEO EMEA, EML
Tap Global was shortlisted for The ‘Leading Financial Services or Payments Start-Up’ category based on criteria s such as the benefits it provides to its end-users, how TAP stands out from its competitors due to its features and innovation, and the proven evidence of its success in the market.
“‘Tap was one of the first companies to launch a crypto prepaid payment card with Mastercard in the EU’ in 2020 and our cryptocurrency-to-fiat prepaid Mastercard and smartphone app give users the power to instantly trade all major cryptocurrencies to fiat, and to make purchases with their cryptocurrency”, comments David Carr, CEO at TAP GLOBAL.
“Tap’s proprietary AI Middleware connects to multiple exchanges simultaneously, automatically validating available liquidity and selecting the most competitive prices while facilitating trades in a matter of seconds. Users can convert their cryptocurrency assets to fiat instantly, allowing them to pay for goods or use an ATM anywhere Mastercard is accepted.
Through the smartphone app, users can securely send and receive cryptocurrencies and fiat, view their transaction history, lock and unlock their card in case of loss and instantly view their PIN. Tap offers its users full EEA coverage for card, banking and cryptocurrencies and a named EUR IBAN and/or GBP Sort Code and Account Number, as well as secure, offline, cold storage behind a multi-signature wallet with the highest grade security for all cryptocurrency assets”, he further adds.
“It’s an honour to be shortlisted for this award which further recognizes the added value TAP brings to market and the benefits for our end-users. None of this would have been achievable without the hard work of our teams and the support of our partners”, says David.
Commenting on the announcement, Kriya Patel, CEO at Transact Payments adds, “The EPA awards are some of the most prestigious awards in our industry recognising companies that are making a real difference in driving innovation in payments. We’re delighted to be working with TAP Global and being shortlisted for this award.”
Day, Month,2021, LONDON: TAP Global has been shortlistedin the ‘Best Use of Crypto in Financial Services’ in the Emerging Payments Awards(EPA) 2021.
Now in its 14th year, the Emerging Payments Awardscelebrate innovation and collaboration by recognising companies thathave made significant impact in supporting and providing payment solutions forconsumers and businesses.
It is one of the most recognized awards within the UK payments industry with an independentpanel of 58 judges including this year:
· Anna Maj FinTech Leader, Senior Advisor, Truffle Capital, SeniorLecturer CFTE
· Jill Docherty [ of Business Development, UK & Ireland, Visa
· Martha Mghendi-Fishe Founder & Executive Board Chair, EWPN
· Mark Walker Co-founder & COO Editorial Director, The FintechPower 50 and The Fintech Times
· Joanne Dewar CEO, Global Processing Services
· Nikki Evans CEO EMEA, EML
Tap Global wasshortlisted for The ‘Best Use of Cyrpto inFinancial Services’ category based on criterias such as the benefits it providesto its end-users, how TAP stands out from its competitors due to its featuresand innovation, and the proven evidence of its success in the market.
“‘Tap was one of the first companies to launch a crypto prepaidpayment card with Mastercard in the EU’ in 2020 and our cryptocurrency-to-fiat prepaidMastercard and smartphone app give users the
power to instantly trade all major cryptocurrencies to fiat, andto make purchases with their cryptocurrency”, comments David Carr, CEO atTAP GLOBAL.
“Tap’s proprietary AI Middlewareconnects to multiple exchanges simultaneously, automatically validatingavailable liquidity and selecting the most competitive prices whilefacilitating trades in a matter of seconds. Users can convert their cryptocurrency assets to fiat instantly,allowing them to pay for goods or use an ATM anywhere Mastercard is accepted.
Through the smartphone app, users can securely send and receivecryptocurrencies and fiat, view their transaction history, lock and unlocktheir card in case of loss and instantly view their PIN. Tap offers its usersfull EEA coverage for card, banking and cryptocurrencies and a named EUR IBANand/or GBP Sort Code and Account Number, as well as secure, offline, coldstorage behind a multi-signature wallet with the highest grade security for allcryptocurrency assets”, he further adds.
“It’s an honour to be shortlisted for this award which furtherrecognizes the added value TAP brings to market and the benefits for our end-users.None of this would have been achievable without the hard work of our teams andthe support of our partners”, says David.
Commenting on theannouncement, Kriya Patel, CEO at Transact Payments adds, “The EPAawards are some of the most prestigious awards in our industry recognisingcompanies that are making a real difference in driving innovation in payments.We’re delighted to be working with TAP Global and being shortlisted for thisaward.”
Saving and investing are two key elements to managing one's personal wealth. In this article, we explore the benefits and downfalls of both these tools and give you a broader understanding of the topics.
What Does saving entail?
Saving money is an imperative step in building one's wealth and involves putting money away on a consistent basis, consistency is key. These funds are usually kept in an interest-bearing account, allowing the value to increase passively over the years.
In the United Kingdom, there are different types of ISA (individual savings accounts) that offer tax-free savings options.
In order to save, one must be spending less than they're earning.
What does investing entail?
Investing involves buying an asset with the intention for it to accumulate in value. This typically comes after saving, although the earlier the better. People invest in the likes of stocks, cryptocurrencies, property and even themselves (education, capital for a business) in the hopes of generating returns.
What's the difference between saving and investing?
The biggest difference between the two is the varying returns you can earn. Saving money in a bank account typically provides returns of 0.5 - 0.8%, while the return potential on cryptocurrencies and stock is much greater.
The other main difference between saving and investing is the risk. So, while earning higher returns on investments might sound much more appealing, the risk is usually greater. Savings accounts carry minimal risk and are usually insured while investment portfolios will rise and fall with the market and are only insured if the investment company fails. Investors should balance the options and establish which risk level they are comfortable with.
In light of these risks, savings are recommended for short term goals while investments cater better to long term financial objectives. This is because long term investments will ride out the ebb and flow of markets and recover even if there is a drop over a certain period. Savings on the other hand are more easily accessible and won't be "interrupted" if the funds are used for an emergency.
However, savings are also susceptible to inflation as the interest rates are seldom higher than the inflation rates. For example, if your bank is offering a 0.6% interest on your savings account and inflation rose 2%, your savings would have actually decreased in value. Investing typically beats inflation.
The similarities between savings and investing
As both tools are excellent at building and creating more wealth, there are bound to be similarities between the two.
The main similarity between the two is that both options are best started now, whether you're in them for the long or short term benefits. This is due to compounding. Compounding is the process where the interest you earn on an investment or savings account is continuously reinvested, increasing the base sum each period.
For example, if you put $1,000 into a compounding savings account and earned 2% interest each year. The next year you will be earning 2% interest on the lump sum plus the interest earned, $1,020. The next year you would earn $1,020.40 ($1,020 interest earned, $20.40). This doesn't sound like too much, but over a ten-year period, you would have amassed $219.20 without having done a thing.
Before you get started
Before getting started on either of these options, ensure that you have a positive cash flow and are debt-free. You'll also need to establish what your risk tolerance is, your short term and long term financial requirements, and when you would like to access the money.
If you don't have one already, you'll want to establish an Emergency Fund that can cover your living expenses for 3 - 6 months. Should you lose your job you can then fall back on this loan and not have to rely on credit cards with high-interest rates.
Experts also recommend setting up a retirement fund, with automated monthly contributions. Once your emergency and retirement funds are established, you can consider a short term savings account or long term investment, or both.
Pros and cons of saving and investing
Below we highlight the pros and cons of both tools:
Saving
Pro: Money is accessible and can easily be withdrawn.
Pro: Exempt from market volatility.
Con: Cannot leverage on market gains (potentially missing out on large compound interest benefits).
Con: Susceptible to inflation.
Investing
Pro: Longer time frames allow for favourable compounding interest.
Pro: Could tap into large market gains.
Con: Exposed to more risk as markets are susceptible to drops.
Con: May incur a penalty if the money is withdrawn too soon.
The bottom line
Both savings and investment options carry their own set of risks and rewards and it's ultimately best for you to speak to a financial adviser who is able to provide you with calculated professional advice.
Disclaimer: This article is intended for communication purposes only, you should not consider any such information, opinions or other material as financial advice. The information herein does not constitute an offer to sell or the solicitation to purchase/invest in any assets and is not to be taken as a recommendation that any particular investment or trading approach is appropriate for any specific person. There is a possibility of risk in investing as investors are exposed to fluctuations in all markets. This communication should be read in conjunction with Tap's Terms and Conditions.
Whether dissecting crypto or fiat currencies, the foundations remain the same: the currency must serve as a store of value and function as a medium of exchange for goods and services. While both these currency options tick those boxes, cryptocurrencies tend to also be followed by a dark cloud of volatility in the financial sector.
Market volatility is a natural byproduct of a developing market, however, it can also cause many losses if not managed correctly. When the crypto markets go through high levels of market volatility they tend to get discredited with being a viable payment option. After paying withness to the Bitcoin market swings, several individuals recognised this flaw in the digital currency space and created a solution, "the stablecoin".
In this article we establish what is a stablecoin is, how it fits into the financial landscape and explore the pros and cons of these digital currencies.
What Is A Stablecoin?
Stablecoins are digital currencies that harness the benefits of being a decentralized, blockchain-operated currency without volatility. Backed by any currency or commodity, stablecoins are pegged to the value of their underlying asset and managed and secured by their relevant platforms. For instance, Tether is pegged to the US dollar while Tether Gold is pegged to the price of gold and Tether EURt is backed by the Euro.
These currencies operate like any other cryptocurrency, using blockchain technology to maintain and operate the network, but do not fluctuate in value based on supply and demand. Rather the price remains consistent with the asset it is pegged to, providing a better tool for digital payment transactions.
How Do Stablecoins Maintain Their Price?
While we've established that stablecoins are pegged to a commodity and reflect that price, let's cover how exactly that is achieved. Using fiat-backed stablecoins as examples, the companies behind these coins are required to hold a US dollar equivalent for each coin in circulation (or Euro if the stablecoin is pegged to it).
These funds, also referred to as reserves, are either held in bank accounts or can be a combination of cash and short-term U.S. Treasury bonds. Most of the companies issuing stablecoins conduct third-party audits to prove that their reserves are at the correct levels and release this information to assure users that their coins are always worth $1 (or the currency-backed equivalent).
Why Have Stablecoins Become so Popular?
The first stablecoin to enter the market was Tether in 2014, pegged to the US dollar. Tether is currently the third-largest cryptocurrency based on market capitalization, illustrating its vast popularity. The second biggest stablecoin currently on the market is USD Coin, also backed by the US dollar, which sits in the top 5 biggest cryptocurrencies with an equally impressive trade volume. Both these coins have provided valuable talking points within the industry as their market caps and adoption increase and they climb the ranks of the biggest cryptocurrencies.
Due to their resistance towards volatility, stablecoins have increased in popularity and are more widely used for conducting business around the world and executing cross border payments.
The Pros Of Stablecoins
Stablecoins are popular options for both businesses and individuals conducting business across borders. Below we outline the top benefits that stablecoins present to the market:
Digital Currency
The obvious first benefit of stablecoins is that they are maintained by blockchain technology and able to conduct international transactions in a much shorter time frame and for less cost than fiat currencies. The fast settlement times make these currencies an excellent, cross-border medium of exchange. They are also easy to use as they operate from wallets in similar ways to traditional cryptocurrencies.
Zero Volatility
Due to the nature of stablecoins being pegged to a fiat currency or commodity, they typically experience little to no high volatility trading periods resulting in a more reliable currency with the benefits of blockchain technology. Pertinent to increasing its adoption.
Hedge Against Failing Markets
Stablecoins have become increasingly popular for traders to hedge against other cryptocurrencies when markets experience a decline in price. Stablecoins allow traders to quickly liquidate their digital assets and easily reenter the market when the price stabilizes.
The Cons Of Stablecoins
Centralisation
While blockchain technology and cryptocurrencies celebrate the notion of being decentralised, stablecoins do bring in a nature of centralisation, particularly when it comes to the backing of the assets. Ensuring that each coin in circulation is backed by an equal reserve value requires a team that leans the operation more toward a centralized structure.
Transparency
Several stablecoins have been called out publicly for not being transparent with their reserves. Tether, for example, has seen much public outcry concerning whether the company has the correct amount of reserves, leading to fines and regulations imposed by the US government. They have since released a report on the current reserve holdings of the company.
In Conclusion
Many traders have incorporated stablecoins into their portfolios, to have as a hedge against falling crypto markets or falling fiat markets. These digital assets are also used by businesses around the world to conduct payments with the benefits of digital currencies and without the risk of volatility. Through the Tap app, users can now access and purchase USD Coin (USDC) as well as Tether (USDT). The sleek design of the app interface makes it easy for users who want to buy or sell cryptocurrencies with fiat currency through their phones in a click.
When it comes to choosing a stablecoin, consider the projects behind it, the liquidity and the ease of use in terms of wallet compatibility.