SAN ANTONIO — With the use cases for cryptocurrency ranging from embedded payment and trading platforms to fiat-backed stablecoins that have real-world lending applications, banks are focusing on safely meeting a growing consumer appetite.
But proving the use cases for crypto is just one step for bankers looking to deploy cryptocurrency services at their institutions.
“We certainly see opportunities in the payment space and in lending areas,” Sean Willett, chief administrative officer at the Warsaw, N.Y.-based $5 billion Five Star Bank, told the audience during Consumer Bankers Association’s CBA Live 2022 this week. “There’s demand, whether it’s on the equipment financing side or ultra-high net worth individuals that are looking to create a liquidity event.”
Customer interest in crypto services is significant, with 85% eager to know more about crypto, Doug Brown, head of digital at technology company NCR, said during the conference. But with a bevy of third-party platforms fighting for a piece of the crypto market, consumer education and service implementation should be high on the agenda of financial institutions.
“If you don’t teach them, where are they going to learn it?” Brown asked the audience. “How does it work? How do you invest responsibly? There’s unprecedented demand from the consumer side.”
Catering to customer needs
The first step is creating a precise business and technology plan that caters to customer needs, Brown suggested.
“Pick a lane,” Brown said. “Are you after a consumer model? A business community application? Unbanked and underbanked? Start there, because overlapping them can paralyze the board and management.”
Willett went further, mentioning a “buy, sell, hold” approach before moving into more complex business cases. Five Star Bank began facilitating bitcoin transactions for customers in January.
“We’re starting with buy, sell and hold because it is the most straightforward,” Willett said. “But from there, you start thinking about dabbling in cross-border payments or payments in general. That’s going to be a longer form of attack.”
Shoring up security is also important, especially for high-net worth individuals who may spend large amounts of money on volatile unsecured assets.
“Even if you’re not ready to do crypto, have the customer service strategy in place,” Brown said. “If one of your high-net-worth customers buys a $12 million non-fungible token (NFT) from a disreputable player, they’re going to blame you in some way, shape or form.”
Education before implementation
Education of board members and stakeholders is an important step in developing an implementation roadmap, Willett said.
“Starting at the board level, there is a level of education that must happen with getting them comfortable and making sure that they understand,” Willett said.
Once this initial hurdle is overcome, the business case comes next, which Willett noted is “straightforward.”
“Seventy percent of customers are willing to switch banks for a bank that offers the ability to buy, sell and hold,” he said. “It’s a powerful tool for financial institutions of all sizes.”
Finding the right crypto partner
Finding an equitable crypto partner is critical for management and oversight, Willet said. Five Star Bank partnered with New York-based NYDIG, a provider of back-end support for crypto and digital asset storage, for its compliance focus, Willett said.
When choosing a partner, banks should focus on organizations that are highly capitalized and regulated, leveling the playing field and assuaging fears of a bad actor gaining access to the ecosystem, he added.
A bank’s cryptocurrency partner is responsible for education, technology and facilitation of processes. For Willett, this stage is the most important of a bank’s crypto journey.
“It all stems from the partner relationship,” Willett said. “That is key to the board conversation, to the internal conversation and then, ultimately, to the regulatory conversation.”
