More than 2 billion people globally do not have access to basic financial services and rely to a considerable extent on remittances, estimated between $600 billion and $1.2 trillion every year. Although there is a global attempt to remedy this situation, driven by both for- and non-profit organisations the likes of the UN, EU Commission, Bill & Melinda Gates Foundation, The Islamic Bank for Development, and others, the massive amounts of cash disbursed annually via remittances represent:
One root cause can be ascribed to the context in which the 2 billion unbanked people live, i.e. low and middle income countries, where unfavourable conditions (e.g. economical viability of conventional banking approach, poor network coverage, lack of identification methods, illiteracy) as well as local regulatory requirements complicate attempts to remediate the poor financial inclusion. Consequently, the provision of any financial services aiming at bettering the situation in these areas has to cope with a higher perceived risk from ordinary finance in comparison to elsewhere, thus increasing entry barriers.
Therefore, a remarkable opportunity can be seized by providing the unbanked with a modern solution for storing, growing and using wealth, fuelled by the global remittance cash flows. This would in turn give a contribution to un-block such communities from gaining financial independence.
Remittances: In the three years leading up to the pandemic, the global volume of remittances grew by almost 7% annually (World Bank 2021). After accounting for the negative impact of COVID-19, official remittances to low and middle income countries are still expected to amount to $702 billion in 2020 (KNOMAD 2021), just 2.4% lower than the record-breaking year before, and significantly higher than initial forecasts projected (McCarthy 2021). This is on top of remittances sent through informal channels, estimated to be of similar magnitude (Irving, Mohapatra, and Ratha 2010), bringing the total global remittance flow to over 1 trillion USD every year. The relevance of remittances for Topos is not their decline due to the pandemic - as seen, this is marginal and expected to outgrow previous all-time-highs already in 2022 (KNOMAD 2021) - but more so their manifestation in an inefficient final form in recipient countries. The majority of incoming remittances are disbursed in cash, primarily due to limited availability of and accessibility to banking infrastructure.
The DeFi space has seen remarkable growth reaching over 2 trillion USD in terms of capitalization and a plethora of on-chain based use-cases. To this day, the global injection of funds is foreseen to continue. However, on average, a sub-optimal perception of cryptocurrencies substantiated by regulatory adversities still exists and depicts them mostly as a speculative tool. This is exacerbated by the limited amount of tangible use-cases for the “off-chain” every-day life, with the exception of a few gimmicky debit cards connected to central exchange wallets, which significantly limits the perceived utility of cryptocurrencies among the broader public. An additional peculiarity of DeFi space is the tendency towards overcollateralization. Indeed, this phenomenon is to some extent aimed at hedging the volatility of the underlying crypto asset, in particular for short term investments with speculative character. Yet, it might also be argued that this tendency is contributed to by a lack of more efficient options for the allocation of the available resources and the early-adopter-minded supporter base of such projects.
Against this background, Topos’ stance is that the full potential stemming from the advantages of cryptocurrencies (e.g. “borderlessness”, security, potential for inclusivity, innovative governance concepts, etc.) is to this day mostly untapped: the creation of sustainable, value-driven bridges between on- and off-chain activities is a promising approach to broaden the adoption and purpose-driven utilisation of cryptocurrencies.
Topos’ proposition aims at seizing these opportunities by:
After securing relevant microfinance bank licences in 2020, Topos began operations in two countries. In local markets, Topos positions itself at the receiving end of global remittance highways, acting as a last mile agency bank that channels incoming remittances into the official digital financial ecosystem. Contrary to disbursing remittances in cash (World Bank 2006), digitising them enables Topos to incentivize local economies to actively partake and benefit from checking accounts, cash deposits and withdrawals, payments, credit scoring, asset management, consumer loans, and more - products, that together comprise Topos’ value proposition to end-customers.
This service offering is realised through a B2B2C business model, leveraging existing agent networks to propagate its value proposition in their local market. Agents operating today already act as beacons in the local microeconomies, distributing remittance inflows and facilitating other types of crucial payments. Not only does this approach reduce up-front investments and operational overhead, it also enables Topos to interact with its customers through a familiar and trusted channel. Members belonging to the communities that Topos is serving are often more isolated and their daily lives driven by processes and routines, e.g. trust, that are rooted deep within their culture, yet are considered to be “informal” from the stand-point of a developed country. Interestingly enough, these local governance mechanisms significantly resemble those of a DAO, just offline. This enables Topos agents to act as local bankers for their communities, attracting funds, agreeing on the investments to finance, managing risk, granting or rejecting loans, and sharing the rewards with the community.
Fazit, through this model, Topos converts cash-disbursing agents in developing countries into licensed bank branches, leveraging the inflow of capital from abroad, channelling it into newly created bank accounts with Topos, and facilitating financial inclusion through the empowerment of local communities to finance themselves and Topos’ ethical financial services offered on top.