Offline digital payments to address financial exclusion in the non-digital world

Internet access already seems like something widely accessible and ordinary. Most of our daily activities, including remote work, communication with friends and family, payments, and more, depend on this structure. But is it as accessible as we think? You might be surprised, but just 66.2% of the population globally has access to the Internet. As a result, around 2.65 billion people do not have access to online services and, above all, digital banking and similar services.

The problem may seem distant; however, I am not talking about some emerging economies. Almost six millions of Americans do not have access to banking services. In the meantime, 1.4 billion people outside the United States do not or cannot have a bank account. So, in times when we tap or scan to pay and businesses refuse to accept cash, these people find themselves cut off from the civilized world.

The dependence of digital payments on the internet or telecommunications connectivity is a big problem. Even though we hear a lot of talk about racial wealth gaps and gender-based income inequality, financial exclusion is kept low on the agenda. However, the latter is one of the factors contributing to global poverty, where people cannot access digital financial institutions to save, invest or borrow. They are not welcome in the digital world and are forced to turn to alternative financial organizations, pay high fees, remain buried in this vicious cycle of poverty and use cash. Worldpay’s Global Payments Report 2024 found that the value of cash transactions was $6.1 trillion in 2023, up from $6.7 in 2022. Let’s face it: the 8% year-over-year difference is tiny.

Tapping into offline digital payments, not yet

The development of offline digital payment solutions could significantly address the issue of financial inclusion. However, this is easier said than done. The concept in a nutshell sounds promising, but faces operational, security and technological hurdles. These solutions represent an untapped market with substantial potential, highlighting the need for further research and development to accurately quantify this opportunity.

Furthermore, we should not forget the complexity and costs of existing banking methods. Current transaction fees are still so high that they can easily take up a large percentage of a low-income individual’s small transfer or payment. I hear you say it’s another vicious cycle, but it’s not. The problem is that we are trapped in a narrow mindset regarding the forms and methods of payments.

Playing the winning cards: modern technologies as offline payment tools

THE case of Sierra Leone’s journey towards financial inclusion highlighted the role of digital financial services in overcoming barriers to banking. In 2014, when the country began receiving technology assistance and grants for digital financial services, only 15.58% of adults had a bank account, despite dozens of commercial/community banks and multiple financial institutions in the country. In 2021, after the first phase of the National Strategy for Financial Inclusion project, these numbers reached 28.85%. In 2023, the government launched the National payment exchange—a financial infrastructure that enables payments interoperability between banks, fintechs and other institutions.

Of course, there is still a lot of work to be done, but the case of Sierra Leone is another proof that modern technologies are the accelerators of inclusive financial services. The use of blockchain technology, central bank digital currencies (CBDCs) and stablecoins could be crucial in the implementation of offline payment infrastructures. These technologies provide a foundation for convenient, secure, and accessible financial services for unbanked populations. How can they make this possible?

Enabling offline transactions for the “not so digital” world.

There are various strategies for offline digital payments, including Near Field Communication (NFC) wallets, QR codes, and token-loaded notes. Each approach presents its own set of challenges and considerations, including device dependency, infrastructure needs, and the need to integrate these technologies into current financial systems. So, let’s take a closer look at each of them.

1. Near field communication (NFC) wallets, cards and devices that contain balance data and are able to share it wirelessly with other devices in close proximity. Offline NFC payments are supported by some apps and cards; however, they mostly offer limited functionality or allow transfers within a certain limit. The challenge: the need for a device that activates and supports NFC technology.
2. QR Code as a payment operator it represents a more convenient and inclusive way to enable offline payments. In most cases, consumers may face specific limits on the amount or number of offline transactions introduced for security purposes. Additionally, paying via QR code still requires a wallet to store your balance data and an infrastructure to lock the transaction amount. But despite this, it is the best way to process payments offline so far. The challenge: the need for technology to read or process QR codes.
3. Notes loaded with tokens—a blockchain offline wallet for storing assets, also known as a Ledger wallet, in the form of a banknote or any other convenient medium that can be loaded with currency to spend offline by managing the banknote to another person offline, like traditional cash. Although it is the most futuristic yet reliable way to enable offline payment using digital money as it can be easily transferred from note-based wallets to digital wallets and vice versa. The challenge: the need for NFC or special minting devices.

The priority task for technology companies is not to give access to traditional banks to those who do not have banking services. In most cases, low-income people do not meet their criteria, such as fees, minimum balances, credit score or others, and therefore remain without banking services. The goal is to provide them with an alternative way to access the benefits of the digital economy. Blockchain technology not only supports the development of digital payment solutions, but also plays a vital role in improving the economic conditions of unbanked populations. Digital banking services, credit and retirement savings could become accessible to even more people around the world, ensuring financial stability and security.

Blockchain-enabled solutions can facilitate secure and efficient transactions, thereby removing barriers to financial inclusion. In this way, companies can promote and support more sustainable and equitable economic development.

• Ross Kolodiazhnyi is an executive leader and entrepreneur with over 14 years of experience in FinTech, including blockchain, cryptocurrency, RWA tokenization, and artificial intelligence. As CEO of DCM, he builds a cutting-edge SaaS for asset tokenization and financial messaging processing. In his portfolio there are international banks, award-winning regulated and decentralized cryptocurrency and blockchain innovations, and artificial intelligence products.

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