Computer Services Inc. (CSI) is joining FIS and Fiserv as the third core provider to partner with Bitcoin fintech NYDIG in a move that will allow community banks to offer the cryptocurrency to customers.

The partnership will allow customers to buy, hold and sell — but not spend — Bitcoin.

NYDIG has issued a flurry of partnership announcements since it officially began rolling out its offering in fall 2021. The fintech also made headlines in December for a $1 billion fundraise that brought its valuation to more than $7 billion.

The company was founded in 2017 as the Bitcoin subsidiary of the holding company Stone Ridge, Rahm McDaniel, head of banking solutions at NYDIG, told Bank Automation News.

“We started from a compliance-first angle that includes financing, execution, AML, KYC, et cetera, and all of the things to really align what it takes to be a player with the digital asset class and the traditional working model of an incumbent bank or credit,” McDaniel said.

While there is consumer demand for Bitcoin, only about one in five Americans actually hold it, he added. Approximately four out of five people say they would store their Bitcoin with their bank or credit union, and around 70% would switch financial institutions to do so, according to NYDIG research.

“We really view this as an access problem and not a Bitcoin problem, meaning that when we look at research that we’ve seen, it tells us that about half those people would actually buy bitcoin if they could get it from their credit banks and credit unions,” McDaniel said. “But in order to do that, we have to do it safely, which is why we focus on meeting regulatory standards, which is why we focused on having bulletproof compliance solution, which is why we work with a set of really high-quality partners.”

How it works

Since banks aren’t approved by regulators to possess digital assets, NYDIG acts as the repository for the Bitcoin. For customers, the account shows just like a bank account — if customers want to buy Bitcoin, they get a quote from NYDIG and the money is transferred out of their checking accounts. On the bank end, the settlement can be handled through the Automated Clearing House (ACH) or wire, said Derrick Bretz, CSI’s vice president of payment services.

“How you try to manage the volatility, there’s an API call to go get the current exchange rate for the Bitcoin, whatever the market rate is that NYDIG is presenting,” Bretz told BAN. “You display it on the screen and as part of that, that’s a configurable option between you and NDYIG [for] how long that rate is valid on the screen while the user is making their decision.”

The rate refreshes approximately every 90 seconds. Once a customer goes to the confirmation stage, the rate is locked in for a set moment in time, Bretz said. CSI integrates with NYDIG through its digital banking platform via API calls, which in turn integrates with the core, he added.

“We enable inside our digital banking the ability for them to buy and sell,” Bretz said.

A general ledger entry is created on either side that CSI calls to via API to display to the end user how much Bitcoin they own, Bretz said.

“This is not a transactional wallet — they can’t use it to buy goods and services,” Bretz said. “It’s more like a stock certificate.”

NYDIG makes the Bitcoin purchase and places it into “cold storage” for added security, meaning it is stored offline.

“We’re providing actually 100% cold storage for the Bitcoin assets. We actually see that as a real differentiator for us,” McDaniel said. “Meaning that what we’re offering is not really susceptible to the same kind of cyber security risks, as you know, as potentially a hot wallet.”

The business value for banks and cores

Currently, the business of Bitcoin is going to alternative providers, such as PayPal or CoinDesk — all earning fees from the buying and selling of Bitcoin, Bretz said.

“We saw as a way to grow noninterest income, which banks are looking to grow in this new service field, but cryptocurrencies [as well] in general,” he said. “This is an opportunity to start acclimating consumers toward what may be coming in the future.”

Banks will make an approximate 2% fee on the value of the transaction, minus CSI’s processing and services fee, Bretz added.