Crypto’s Resiliency Spurs Interest from Financial Institutions

Standing-room-only crowds during breakout sessions at recent industry conferences nationwide are a strong indicator of financial institutions’ growing interest in cryptocurrency and other digital assets.

As discussed in a recent blog, Bitcoin (and other digital coin values) volatility has done little to alter crypto’s long-term outlook.

If anything, repeated recoveries – Bitcoin’s price has fallen by half three times since 2018, each time quickly rebounding – and continued consumer interest are signs of resilience. As consumers vote with their dollars, moving deposit balances out of traditional accounts and into crypto exchanges, it’s no surprise that banks and credit unions are exploring the space with an increased degree of urgency.

SRM’s recent report provides a solid overview of the cryptocurrency landscape in 2022 and explores key areas where financial institutions are best positioned to participate. While greatly encouraged by the successes of early adopters, our experts urge executives to resist the “quick win” temptation. We advise FIs to take the necessary steps to establish a flexible long-term foundation.

Investing or Spending?

Crypto’s evolution has long relied on two broad overlapping uses – serving as a store of value and a means of exchange. There’s little doubt the current wave of consumer interest is driven by the former. Although digital wallet providers like PayPal and Venmo enable payment with Bitcoin, most current activity – and promotion – focuses on the aspects of buy, sell, and hold.

For this reason, bank and credit union initial interest has focused on crypto trading, including integrating it within their mobile banking apps. This is a wise near-term move, as it addresses several key objectives outlined in our report: Defending deposit balances, increasing customer engagement, gaining new clients, and avoiding disintermediation.

This last benefit is particularly important. One of banks’ and credit unions’ most valuable assets is their established reputation as trusted advisors. Consumers have demonstrated their interest in crypto, and the majority express a desire to conduct such dealings through their financial institution. If their institution doesn’t stand ready to help, consumers have shown that they will turn elsewhere.

Offering crypto trading services through third-party partnerships also opens new avenues for noninterest income – a particularly appealing prospect given growing pressures on areas such as overdraft revenue. However, we have not found this to be the driving factor in the short run.  

Preparing for the Long-Term Play

Assuming the crypto market continues to evolve, financial institutions will soon want to expand their offerings to include payment capabilities, lending against digital assets, and crypto-based rewards programs, among others. Banks and credit unions should be careful not to repeat past mistakes in pursuit of a quick fix – the easy answer may not be the best.

Crypto service providers have struck partnerships with the leading core banking systems and stand ready to bring banks and credit unions to market quickly with turnkey solutions. We strongly advise our clients to closely examine the extensibility of these solutions, as well as the terms of underlying third-party partnerships. Banks and credit unions are all too familiar with siloed platforms that degrade the customer experience. This is an opportunity to avoid creating another silo that compromises future crypto product offerings.

The Bottom Line

Banks and credit unions are setting the wheels in motion to make cryptocurrency services available to their customers. As detailed in our report, we believe this is a wise move, as crypto assets have demonstrated they are around for the long haul, and consumers have indicated their preference for engaging in crypto through financial institutions.

Despite the temptation to rush to market with a quick and easy solution, we suggest that it’s worth investing in the upfront step of ensuring the solution is equipped to enable additional functionality on the roadmap.