Banking Problems in Emerging Markets and Crypto Solutions
The last decade has seen the emergence of a number of new industries with significant economic potential. Crypto, Cannabis, Online Gaming, and technology have been particularly revolutionary sectors that have seen explosive growth.
New markets, new products, and new solutions attract creative and enterprising individuals excited about the potential to cash in on a gold rush and build something from the ground up. However, as many eager entrepreneurs looking to break into these industries have found out, innovation and explosive growth often outpace the building of financial pipelines.
Governments and banking systems are often wary of new and unproven industries and have, in many cases, limited access to institutional capital as an attempt to throttle growth to a pace they can regulate more effectively.
This can be incredibly frustrating for people trying to do business in emerging industries who may feel that they’re missing out on a well-timed business opportunity because of red tape and rapidly changing rules.
In no industry has this been truer than cryptocurrency. Digital currencies have gained a bad rap as being associated with the seedier elements of the internet and for their extreme volatility. Regulation of cryptocurrency has been a global patchwork, leaving investors and entrepreneurs scrambling to keep up.
However, 2019 saw many of these rules start to clarify and solidify in jurisdictions across the globe, as well as the emergence of security tokens. Securities tokens in the US are filed with the SEC, and have to undergo the same legal process and scrutiny as any other security, but have the utility and flexibility of a digital asset. Unlike coins brought to market by independent issuers, security tokens need to be backed by a real-world asset and so investors can purchase confidently. Security tokens have brought much-needed transparency and stability to the digitization of assets. Finally, there’s a light at the end of the tunnel for crypto investors and entrepreneurs alike.
This shift is a herald of even greater things to come and contains some lessons that emerging industries would be wise to take to heart, as well as a potential solution to some of the growing pains common to emerging markets.
Two industries that seem to be ideal candidates for adoption are cannabis and gambling. In the United States, both industries are regulated on a state-by-state basis. Currently, 33 states have legalized medical or recreational marijuana.
Sports gambling has also seen a huge surge in popularity. 19 states have now legalized sports gambling, while an additional 14 states are reviewing legislature. In 2023, it is estimated that there will be $1 trillion wagered online annually, with global legal cannabis spending surpassing $60 billion.
Companies have been flocking to the cannabis and gaming industries at extraordinary rates. However, only one in every 30 banks or credit unions in America accepts cannabis businesses as customers. On the gambling side, unless you are willing to pay sizable fees and drastically high transaction fees, it is nearly impossible to secure a bank account or payment service provider (PSP).
These obstacles to traditional capital sources have created major headaches for entrepreneurs and businesses who are trying to scale their business to demand. These are the same frustrations that cryptocurrency faced earlier in the last decade.
Cryptocurrency continues to grow and win regulatory battles across the globe, and also provides an excellent solution for banking clogged emerging industries. Companies in this space can resolve their banking needs by accepting cryptocurrency as payment, conducting a security token offering, or even establishing their own crypto exchange.
The blockchain is a digital ledger that tracks every transaction and is the ultimate form of transparency for high-risk industries. Adopting blockchain technology can be a great solution for industries with a strong regulatory eye watching their every move, as well as provide a range of commercial benefits for owners and operators. There are no fees associated with accepting cryptocurrency, for industries highly reliant on credit card transactions. You don’t need a bank or a PSP to accept cryptocurrency, you are the sole owner and supervisor of your money. No third party can come in and freeze all of your funds, due to you operating in a high-risk industry and you can now target a global audience, without having to worry if your bank accepts a specific country’s currency.
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