Banking on distributed ledger technology: Can DLT help banks address financial inclusion?

Financial technology has been suggested as a means to address the needs of consumers who may be otherwise outside the financial services community. Several studies from policymaking institutions highlight distributed ledger technology (DLT), one such financial technology, as a potential solution to this problem. We develop a descriptive analysis of whether the attributes of DLT provide solutions for the reasons unbanked consumers do not have a checking account. We find that on the surface, DLT’s main features align very well with the major obstacles facing unbanked consumers: cost issues, trust and privacy concerns, and insufficient offerings or limited access. However, once one delves deeper into these issues, the benefits of DLT to the unbanked are not quite so clear cut. We argue that, although DLT likely addresses each issue in at least a limited capacity, it is unlikely to foster major changes in the share of unbanked consumers in the United States. While DLT will likely reduce service provision costs, banks are unlikely to pass on these savings as, historically, bank service fee changes are driven by market events. Moreover, outcomes from previous cost-focused policy initiatives suggest that either demand for banking services among the unbanked is low or that demand among this population is relatively unresponsive to changes in the cost of banking services. DLT is also unlikely to make banks more trustworthy or provide more privacy for consumers. DLT may address convenience and account offering concerns, however, only a small percentage of unbanked households report these reasons as the major factor for their banking status.