The emergence of cryptocurrency has created a lot of buzz in the banking and financial industries. Its very name evokes ideas of cryptic, mysterious doings. As the world becomes more familiar with the intricacies of these new types of digital currency, it’s important for your credit union to know what the buzz is about.
Cryptocurrency was born on the internet. And its virtually universal accessibility makes it attractive to younger and more digital-forward investors and other interested parties. Recently, new guidance was introduced to help credit unions forge a path in this new landscape. Let’s talk about the benefits of cryptocurrency for credit unions.
Cryptocurrencies for Credit Unions
The National Credit Union Administration (NCUA) has already begun sharing guidance on credit unions and cryptocurrencies. The goal is to create relationships between federally insured credit unions (FICUs) and third-party entities that buy, sell, and hold these digital assets.
A cryptocurrency is a form of digital money with no centralized authority. This means transactions are recorded on a digital ledger automatically. The increased interest in cryptocurrencies has led many banking experts to conclude that credit unions could generate some impressive growth by expanding into these new markets.
Cashless financial services have been the trend for several years now, even before COVID-19 came along. Demand for cryptocurrency access continues to grow as well.
The biggest problem with these new digital currencies is that they are not well regulated yet. When transactions take place, they’re logged into the blockchain – the database that monitors all cryptocurrency transactions. There’s no government regulating these transactions, and anyone who uses the blockchain can view it and the transactions therein.
Many people have been using credit cards to buy cryptocurrencies. But the speculative nature of these markets has caused some banks and credit card companies to deny these transactions.
Benefits and Risks of Offering Crypto Services
More and more businesses are embracing cryptocurrency. You can make Starbucks, Microsoft, Shopify, Home Depot, and Whole Foods purchases with crypto “coins.” The main benefit for those who deal in cryptocurrency is the ability to access and move their money without the use of a third party. They are digital files you can store in digital wallets and use anywhere online with participating merchants.
The regulations issues surrounding the crypto industry continue to be concerning for credit unions and other financial institutions that are more in tune with risk management best practices and compliance.
However, credit unions that wish to stay away from this trend may be missing a big market opportunity. In December 2020, a Cornerstone Advisors survey showed that almost 70% of cryptocurrency owners would use their primary banks for digital investments. However, very few financial institutions are interested in managing these transactions.
21 million adults already own some form of cryptocurrency, and this group offers a huge growth opportunity for credit unions willing to take the leap. This could be a big selling point for future member attraction and retention efforts.
Ways to Get Your CU Involved
There are several options for credit unions wishing to mitigate the risks that come with handling cryptocurrency.
First, you can work with a third-party business. Using mobile apps, you can create transaction opportunities for your credit union members, while running all of these assets (and the associated risk) through a third party.
You can also provide crypto custody services. This falls more onto the record-keeping side of things and includes services like safekeeping, analytics, asset servicing, lending, pricing and valuation, trading, payments and settlements, and collateral.
And positioning your credit union as an early partner for cryptocurrency lovers is a great way to banish the myth that credit unions are technologically challenged.
Offering crypto services is also a great way to reach specific members of the unbanked and underbanked audiences. These individuals love having the option to conduct business without having to create or maintain a bank account.
Cryptocurrency will soon be more regulated. Executives within government and financial compliance agencies, like the SEC, are announcing plans to use legislation and other methods to make cryptocurrency more regulated and mainstream.
Protect Your Members’ Assets from Cash to Crypto
Like many consumers, crypto holders are more likely to partner with financial institutions that offer crypto-specific services. Not sure about jumping into the cryptocurrency game? Credit unions can also offer custodial services, create crypto-forward debit and credit card rewards or interest enhancement, and more.
Credit unions are seen as trustworthy and member-forward. Being among the first institutions (and even beating fintechs to the punch) could be a great way to usher in a new generation of online investors.
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