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The Bottom Line

Stop me if you've heard this one before – a group of industry players creates a consortium to launch a digital wallet to participate in the payments process and exert control over the consumer experience.

Such an endeavor has been pursued in the past years by major U.S. retailers, like MCX, and telecom providers, through the unfortunately named ISIS.

Professionals focused on the strategic and operational aspects of digital assets such as cryptocurrency have learned to disregard the media cycles.

Last year’s breathless hype – driven almost entirely by a retail investor frenzy – has given way to a “crypto is dead” storyline that emphasizes volatility and fraudulent applications. Lost in the noise is the fact that Bitcoin’s price has been relatively stable over the past four months.

We're beginning to get some clarity from the White House regarding its approach to digital assets, including the potential development of a Central Bank Digital Currency (CBDC).

With the release of a wide-ranging report, the White House appears to be embracing digital assets and their potential for transparent, cost-efficient, and inclusive financial services. A background press call provided even more insight into the Biden Administration's thinking.

Banks and credit unions interested in offering Buy Now, Pay Later (BNPL) services should be pleased with the latest report from the Consumer Financial Protection Bureau (CFPB).

Many FIs have been reluctant to dive into the popular consumer offering, largely due to uncertainty over the regulatory environment. SRM asserted in a recent report that banks and credit unions have the experience and tools necessary to handle regulatory scrutiny.

The Biden Administration's March executive order seeking information on digital assets' usage and security set a flurry of activity into motion. This included a mandate for the Treasury Department to deliver a report on the future of money and payments systems. The agency issued a public request for comment in July, and SRM quickly responded, drawing from our detailed and ongoing coverage of cryptocurrency and other digital assets.

You can read our complete submission here; however, the condensed version below highlights the key points we believe every financial institution should consider as policies toward digital assets take shape.    

Banks and credit unions have a new roadmap for handling fintech partnerships.

The Office of the Comptroller of the Currency (OCC) just issued a written agreement to Blue Ridge Bankshares instructing the Charlottesville, Va., company to improve how it pursues and monitors fintech relationships.

The agreement comes months after the OCC raised issues with Blue Ridge’s ($2.8 billion-asset) proposed merger with FVCBankcorp (the deal was ultimately terminated). While the specific issue was never disclosed, there was speculation it had to do with Blue Ridge’s fintech dealings.

Sometimes it’s hard to believe 30 years have passed since our founder Curtis Downs took the concept of developing contract benchmarks and applying them to help banks, credit unions, and others achieve critical savings – the underlying value proposition behind SRM. That foundation has allowed our clients to add more than $5 billion to their bottom line over the years.

It's fascinating to look back three decades and see the rate of change that has taken place in the financial services industry. As we acknowledge our company’s 30^th anniversary this year, I want to highlight some significant changes in financial services that have also challenged and motivated SRM to evolve.

The first half of 2022 was eventful for banks and credit unions, and there’s no reason to expect the pace to slow. Financial institutions must monitor changes to the payments ecosystem while simultaneously dealing with rising interest rates, eroding consumer confidence, and potential cracks in credit quality.

Here’s a quick summary of what the team at SRM sees as the key trends in financial services and how these trends might play out over the balance of the year.

Banks and credit unions must prepare for some consumer payments and credit quality turbulence.

Consumer prices rose by an astounding 9.1% by June from a year earlier – a 41-year high – causing the average American to spend roughly $460 more per month than they did a year ago, according to Moody’s Analytics Senior Economist Ryan Sweet.

Inflation has led the Federal Reserve to get aggressive with interest rates, including a 75-basis-point hike earlier this month. There is talk the Fed could opt for an unprecedented 100-basis-point increase in light of the June data.

Rising rates could deal another blow to consumers already facing higher costs for goods.

Given recent headlines, stablecoin supporters may disagree with the saying, “there’s no such thing as bad publicity.”

TerraUSA, an algorithmic stablecoin, imploded in May. This hurt the valuation of numerous cryptocurrencies and cast doubt on Tether’s ability to sustain its own $1 peg. Thus far, Tether has defied the skeptics.

Amid this tense environment, it’s interesting to revisit the January headlines speculating that PayPal was mulling introducing a stablecoin. According to company officials, the rumor was based on source code embedded in PayPal’s iPhone app, which was inadvertently left behind after an internal hackathon.

It’s difficult to envision PayPal taking on this challenge soon. Meta’s ill-fated stablecoin foray via Diem/Libra illustrates the hurdles facing such an endeavor, especially one undertaken by a tech giant.

At the same time, it’s important to speculate on how such an offering might impact the broader market over the long term. After starting its life as the first true digital financial services disruptor, PayPal could, ironically, find itself cast as an enabler of traditional market stability due to recent crypto market turmoil.