The crypto industry may be young, but it’s not small. And for banks, there is ‘once – in – a – generation’ opportunity to gain market share. Indeed, crypto represents one of the most significant innovations in the history of finance.
The astronomical growth in the amount of money invested in cryptocurrencies has been enough to make banks sit up, take notice, and get involved. Take BlackRock’s recent bitcoin ETF application for example. With the current market capitalisation sat at over $1trn according to Statista, and an estimated 420 million crypto users worldwide, the sheer size of these numbers suggests that crypto has become a mainstream investment vehicle.
The titans of the institutional financial world have been here for a while. Names such as Fidelity, BlackRock, Goldman Sachs, Citi and HSBC have all been making big moves. In Europe, Deutsche Bank, Credit Agricole and Santander all recently declared their intention to offer custodial services for crypto, and the EU’s full approval of the Markets in Crypto Assets (MiCA) regulation looks to be another strong step in the right direction. All signs indicate that the evolution of crypto is now gathering a swift pace.
As more people diversify their investment portfolios to include cryptocurrencies, there is a tangible opportunity for traditional banking systems. Money that would typically flow into savings accounts or be invested in traditional assets is now being allocated to digital currencies.
Money flowing away from traditional financial ecosystems
Currently, this shift represents a challenge for banks, as they face the risk of losing customers, assets and transactional volume. Furthermore, as money flows out of traditional banking channels, the bank is no longer able to use that deposit to generate revenue.
On average, approximately half of daily deposits on our exchange come directly from customers’ bank accounts. If we take that figure and apply it to the wider industry, which we already know has a market cap of over $1trn, that is potentially hundreds of billions that have not only flowed out of the traditional financial ecosystem, but straight off banks’ balance sheets.
Furthermore, public appetite for crypto continues to grow. A recent Paxos survey indicated that interest in crypto remains strong and new users are continuing to enter the market. The report found that 27% of respondents said the first time they purchased crypto was in 2022 – in the depth of the crypto winter. Capitalising on this continued confidence in bitcoin and the prevailing institutional sense that blockchain has a huge role to play in the future of finance should be a strategic priority for all customer-driven organisations.
A new era of opportunity
There are many ways banks can explore ways to monetise the growing interest in this asset class. By integrating crypto services into their offerings, banks can generate new revenue streams. Aspects of crypto can be built into spending, saving, sending and investing money – and can be easily integrated into widely-accepted financial tools like debit card rewards, peer-to-peer payments and fractional investing. With bitcoin showing so much momentum, there is also no need to over-complicate offerings with lots of coins and tokens.
Beyond generating new revenue, banks can leverage crypto to protect their existing margins. Cryptocurrencies offer faster and cheaper cross-border transactions compared to traditional remittance services. By integrating blockchain technology into their infrastructure, banks can streamline international transfers, reducing the cost and time required to settle transactions. This improvement in efficiency can help retain customers who value faster and cost-effective cross-border payments.
Setting up new services from scratch is costly and time consuming – a significant barrier to entry for most firms. However, if banks and financial institutions want to “go crypto”, partnering with a fully vetted, licenced and experienced Web3 fintech firm is their best route. This offers their customers the best of all worlds – and also creates a partnership with an expert that understands the complexity of KYC, AML, SOC2 and other customer protections needed to maintain trust and safety.
Without changing their existing roadmap, TradFi firms can leap ahead to match the ask of their own customers – offering crypto services to generate new revenue streams, save money for themselves and their customers and add the role of the “trusted crypto partner” by offering crypto rewards and other digital assets. It is a no-brainer to move from owning the physical wallet to owning the digital wallet – and now is the time to start building this future.
Todd Crosland is CEO of CoinZoom