The Underbanked Uncomfortable With New Digital Euro Payment Solution — ECB Digital Wallet Study ⋆ ZyCrypto

On April 24, 2023, the European Central Bank (ECB) published the findings of focus groups and in-depth interviews in all euro area countries from December 2022 to January 2023. The study aimed at soliciting views on the features of a potential digital wallet targeted a cross-section of participants ranging from the general population, the tech-savvy, merchants, and the underbanked.

According to the study, the underbanked category was the only target group uncomfortable with adopting a new digital payment solution. Awareness and knowledge of digital wallets within the underbanked groups were generally low. The focus groups also found that the underbanked had general mistrust of the banking system. The underbanked also carried out most transactions using cash.

As per the ECB study, the underbanked were defined as participants who may hold a bank account but rarely use banking services or other payment apps and direct debits. The underbanked were low-income earners who considered a bank account an unnecessary additional cost. The underbanked who had a smartphone used them mostly for making and receiving calls, using social apps, and playing games.

The focus groups found that the underbanked did not have worthwhile reasons to learn how to use digital banking services for fear that their knowledge would soon be obsolete. The underbanked acknowledged society’s gradual shift from cash and recognized they would have to deal with digital payments at some point. 

Some underbanked imagined having a digital wallet but would not use it for large sums of money to limit their losses in case of any problems. The study found that younger respondents were more willing than older respondents to adopt the digital wallet.

On April 20, 2023, the European Union (EU) Parliament approved the first rules to trace crypto-asset transfers, prevent money laundering, and common supervision and customer protection rules. The “travel rule already used in traditional finance will require information on crypto asset transfers to be stored on both sides of the transfer.”

Markets in Crypto Assets regulation (MiCA) is the EU’s proposed regulatory scheme that aims to cover issuers of crypto assets, crypto asset service providers (CASPs) and to protect crypto asset holders.

Crypto proponents have argued that Decentralized Finance (DeFi) can enable the underbanked and the unbanked to access opportunities and products not traditionally available to them via traditional finance.

Although proponents have argued that cryptocurrencies have the potential to provide easy access to financial services to the underbanked, opponents of cryptocurrency believe that there are other ways to address financial inclusion rather than through cryptocurrencies.