Visit the website of $785 million Vast Bank and you can’t miss it: The primarily commercial bank with a retail community presence based in Tulsa, Okla. now offers a cryptocurrency trading service called Crypto Banking in its mobile app.

The app links users’ checking accounts with the cryptocurrency trading service, allowing clients to buy, sell and hold eight different digital currencies — Algorand [ALGO], Bitcoin [BTC], Bitcoin Cash [BCH], Cardano [ADA], Ethereum [ETH], Filecoin [FIL], Litecoin [LTC] and Orchid [OXT]. To provide the service, Vast leans on technology partners SAP and Coinbase, according to a release from the bank.

Cryptocurrency trading is rarely offered at smaller banks, but a growing number of large financial institutions are offering the service — even if it only encompasses the widely recognizable Bitcoin — including $3.68 trillion JPMorgan Chase, $1.95 trillion Wells Fargo and $1.16 trillion Morgan Stanley.

An opportunity for banks to remain relevant

Services such as Vast Bank’s Crypto Banking may be a way for smaller banks — or, indeed, banks in general — to stay relevant, said Nathaniel Harley, co-founder and CEO of MANTL, a digital account-opening solution for community banks and credit unions.

“This type of innovation helps existing banks modernize their offerings and take advantage of the digital future, which is key for the overall health of our financial ecosystem,” Harley told Bank Automation News. “Even with the recent volatility in crypto, the technology has a lot of potential to reshape our financial system, and consumers are becoming more vocal about wanting to use their bank to invest in cryptocurrencies.”

Harley pointed to $1.28 billion New York-based Quontic Bank launching its Bitcoin Rewards Checking product in October 2020. “Until now, Bitcoin adopters have relied on apps from a new generation of fintech players like Robinhood, PayPal, Square or Coinbase,” he said.

“Banks are realizing that there’s a huge opportunity for them to allow customers to wager on crypto within their existing bank relationship rather than sending dollars to Coinbase and other crypto exchanges,” he added. “And I think this is a pretty exciting space to watch.”

Matthew Le Merle, managing partner of alternative asset platform Fifth Era and blockchain venture fund Blockchain Coinvestors, agrees.

“It has not been lost on the world’s bankers that the world is going to shift to digital monies, commodities and investments, and to support those a bank will need digital wallets and infrastructure,” Le Merle told BAN.

“Not to have a digital wallet is to give the next generation to your future competitors today,” Merle said.

Risks and complex tech infrastructure

Even if there’s opportunity for banks, the other side of the digital coin involves risk and complex tech infrastructure.

“Cryptocurrencies have edged their way into mainstream retail finance, and there can be no question that banks are an inevitable next step for this market,” said Daniel Maland, partner at Mark Migdal & Hayden, a Miami-based specialty litigation firm that works with banks and regulatory agencies such as FDIC.

“Morgan Stanley and Goldman Sachs have already taken this step, and it makes financial sense,” Maland noted. “It keeps their clients investing under their own roof, rather than turning to third-party crypto exchanges.”

“That said, the [Securities and Exchange Commission] also intends to increase regulations of crypto,” Maland continued. “With that comes added expense for the banks and increased short-term risk as the SEC goes after improper or illegal crypto products that currently exist in the U.S. market.”

“Further, as banks adopt these products, they will need to be mindful to adjust their anti-money laundering initiatives and know their customer practices accordingly. These adjustments will ensure proper tax practices are being followed in regard to these products,” Maland said.

Most banks face a technology gap in getting into the cryptocurrency space, MANTL’s Harley noted.

“Banks do not currently have the tech to support this. They will have to rely on partnerships with third-party vendors such as core providers who offer this solution,” Harley said, similar to Vast’s strategy. “Community banks will need to offer or partner, as we’ve seen with [New York Digital Investment Group] partnering with smaller institutions like Suncrest, to compete.”

A challenge before banks, Le Merle said, is to know exactly when to move forward with these technologies. “The tough part for a bank CEO is to judge whether to get in now as an early mover or wait and be an early majority,” he noted. “You can’t be a laggard, and the timelines are long to get these technologies to market.”