The Coming Bank-Bitcoin Boom: Americans Want Cryptocurrency From Their Banks

Forbes

Coinbase employee Daniel Huynh holds a celebratory bottle of champagne as he photographs outside the … [+] Nasdaq MarketSite, in New York’s Times Square, Wednesday, April 14, 2021. (AP Photo/Richard Drew)

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OBSERVATIONS FROM THE FINTECH SNARK TANK

The rise in the price of Bitcoin, coupled with Coinbase’s IPO debut (which valued the company at ~$85 billion), has helped legitimize Bitcoin and cryptocurrency in the eyes of many doubters and skeptics.

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Not among banks, however.

A Cornerstone Advisors survey of senior bank and credit union executives found that eight in 10 financial institutions have no interest in offering cryptocurrency investing services to their customers—and just 2% said they were “very” interested.

Cryptocurrency investing plans

Source: Cornerstone Advisors

Consumers Want Bitcoin From Their Banks

Banks and credit unions appear to be unaware of consumer trends and attitudes regarding cryptocurrency. According to a December 2020 survey of 3,898 US consumers from Cornerstone Advisors:

  • 15% of US consumers own Bitcoin or some other form of cryptocurrency. With the run up in the price of Bitcoin since the end of 2020, that percentage is certainly higher today. At the time of the survey, 17% of consumers said they planned to invest in cryptocurrency in 2021.
  • 60% of crypto owners would use their bank to invest in cryptocurrencies. Among consumers who already hold cryptocurrencies, 60% said they’d definitely use their bank if it offered them the opportunity to invest in cryptocurrencies—and another 32% said they might do so. Just 4% of current crypto owners said they wouldn’t use their bank to invest in crypto because they wouldn’t switch from the exchange they’re currently using.

Interest in cryptocurrency from a bank

Source: Cornerstone Advisors

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  • 68% of crypto owners are very interested in Bitcoin-based debit or credit card rewards. Among consumers that intend to purchase crypto in 2021, about four in 10 are very interested in Bitcoin-based rewards and almost half are somewhat interested.

Interest in Bitcoin rewards

Source: Cornerstone Advisors

Why are Banks’ Heads in the Sand?

What’s holding banks back from offering cryptocurrency investing services? Risk aversion and compliance. According to the Boston Consulting Group:

“Financial services leaders remain skeptical of the value that cryptocurrency has as an asset class, and individual cryptocurrencies have lost market capitalization at times. During the COVID-19 crisis, cryptocurrencies experienced volatility, and their reputation was tarnished by the association of Bitcoin with criminal acts such as the Twitter hack of July 2020.”

This is a pretty lame excuse. It’s like a bank saying “we won’t take cash anymore because some people counterfeit money.”

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In addition, banks enabled their customers to invest in stocks like Tricida and Invesco Mortgage Capital, both of whom lost roughly 80% of their market caps in 2020.

Does that kind of volatility not count?

Beginnings of Bank Crypto Activity

The 2% of institutions with an interest in providing crypto-related services are, for the most part, larger institutions. According to a senior executive from a top 10 bank (who asked to remain anonymous):

“Every major bank is actively in RFPs with the major custody platforms. The products are probably 8 to 12 months away from being offered.”

There is some crypto activity among smaller banks, however, including:

  • VAST Bank. VAST says it’s the first nationally chartered financial institution to both purchase and provide custody services for a digital asset on behalf of customers and directly from their bank accounts.
  • Quontic Bank. In late 2020, Quontic Bank launched a Bitcoin Rewards checking account which pays account holders 1.5% in Bitcoin on purchases made with the account’s debit card.
  • First Boulevard. This challenger bank, focused on building generational wealth for Black Americans, announced it would pilot Visa’s suite of crypto APIs to enable its customers to purchase, custody, and trade digital assets.

Who’s Afraid of a Little Crypto Competition?

According to one provider of crypto custody services:

“Many banks are concluding that they can’t compete with Coinbase’s robust retail customer/product experience, and are focusing their efforts in the asset management and private client areas of their business.”

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More lame thinking on the part of the banks.

Three reasons why:

  1. They haven’t seen the data shown above on consumers’ interest in getting crypto services from their banks;
  2. If companies didn’t offer new products and services because some other competitor was already in the market with a good product, we’d never see 75% of the successful products in the market; and
  3. Coinbase—along with Square, PayPal, and other crypto exchanges—are broadening their offerings into general banking services. Case in point: Coinbase’s debit card offering.

Consumer Demand For Cryptocurrencies

Bank execs like to think their organizations are “customer-centric.” If that were true, banks would be falling over each trying to launch crypt0-related services.

With the exception of consumers over the age of 55, nearly every demographic segment of the population expresses strong—and growing—interest in investing in Bitcoin and cryptocurrencies.

Cryptocurrency ownership and purchase interest

Source: Cornerstone Advisors

The Coming Bank-Bitcoin Boom

Banks have a long list of reasons for avoiding cryptocurrency— “our customers shouldn’t be investing in it,” “it’s too risky, not worth it,” and so on.

The bigger risk for banks is not providing cryptocurrency services.

Patrick Sells, Head of Bank Solutions at NYDIG, the Bitcoin subsidiary of Stone Ridge, a $10 billion alternative asset manager, makes the case that providing crypto services reduces banks’ risk:

“By not offering cryptocurrency trading services, banks potentially have greater AML exposure because they don’t know where the funds that are coming in are coming from.”

Banks and credit unions can’t keep ignoring consumer demand for cryptocurrency. And they won’t. Four forces will mobilize the banking industry, setting the stage for a bank-Bitcoin boom in 2022:

  1. Large institutions launching crypto offerings;
  2. The success of PayPal and Square in the crypto space;
  3. Strong consumer interest and demand; and
  4. Continued regulatory easing and guidance.

This gives banks some time in 2021 to educate themselves on the compliance factors and product options involved. Options in the plural because, as NYDIG’s Sells explains, crypto isn’t just about trading:

“Banks have a range of product options including trading, rewards, and interest enhancement (i.e., providing interest to account holders in bitcoin).”

Falling back on moral excuses for avoiding the crypto market—e.g., “it’s a Ponzi scheme”—doesn’t hold water. It’s akin to saying you won’t lend to someone who goes to Las Vegas to gamble or who engages or won’t bank someone you think spends too much of their money on lottery tickets.

Banks have to own up to the realization that investing in cryptocurrencies is becoming mainstream. Refusing to play the game is a bad business decision.


For a complimentary copy of Cornerstone Advisors’ report Embedded Fintech: How Financial Institutions Can Jumpstart New Product Innovation Through Fintech Partnerships, click here.

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Author: Ron Shevlin, Senior Contributor


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