Futureproofing Credit Unions for the New Crypto Frontier

Crypto has come a long way from its emergence in 2009, and is now well on its way to mainstream adoption. What started as a theoretical solution to some of the limitations of fiat currencies – offering privacy, reduced transaction and exchange fees, increased financial inclusion and decreased government interference – has grown into a global phenomenon, with the total global market capitalization of cryptocurrency reaching $3 trillion by the end of 2021, as TIME reported. The universe of cryptocurrencies has expanded from just 50 types of tokens in 2013 to more than 16,000 today, according to Statista, and fintechs and governments alike are getting into the game and introducing less volatile, dollar- or government-backed stablecoins.

And in a move signaling just how prominent digital currency has become, the Biden Administration recently issued an executive order calling for a coordinated, whole-of-government approach to regulating digital assets and ensuring that the financial services industry is equipped to manage them. The simple fact that regulators have taken notice indicates that they expect cryptocurrency to remain a fixture of the financial services ecosystem.

In other words, all financial institutions – credit unions included – must start thinking seriously about how they incorporate cryptocurrency, and digital asset trading more broadly, into their core offerings. The consumer demand for it is robust, and competition to capitalize on this demand from all corners – fintechs, crypto exchanges, Tier 1 banks, neobanks and more – is ferocious. Credit unions that fail to embrace the technological innovations necessary to board the digital currency train may very well miss out on lucrative business from their interested members, or worse, lose the race for the burgeoning, crypto-savvy Gen Z market. This all translates to lost revenue and slower growth.

Like any major technology shift, the prospect of upgrading platforms and systems to support digital currency trading and investing can be daunting. But with diligent preparation and the right partnerships, a path to the future is possible.

Reaching the Tail-end of Early Adoption

Cryptocurrency is not yet held by a majority of consumers – but we may be reaching a tipping point. A recent survey of U.S. consumers by Cornerstone Advisors showed that one in five American adults holds some form of cryptocurrency – but not all of them are happy with their options for investing it at this time. The same survey found that half of the respondents would prefer to use a bank to invest, while 42% said they would consider it. Another survey, this one by Paxos, found that 56% of current cryptocurrency holders say they are very likely to buy or sell additional assets over the next two years. Paxos’ survey also found that, for 34% of crypto holders, it was their first experience with investing outside of their retirement vehicles.

The opportunity for credit unions is clear. Consumers are looking for safe, reliable means to get in the game, as well as the opportunity to integrate their digital assets into their broader financial portfolio. Credit unions, with their uniquely mutual relationships with their members, are perhaps among the best-positioned financial institutions to meet this growing consumer demand while also educating and protecting their members.

Credit Unions Must Think Ahead to Stay Ahead

If 2021 was the year that cryptocurrency went mainstream, 2022 could be the year of regulation. Cryptocurrency regulation is still in its nascent stages, but industry regulation – particularly around AML and KYC compliance, data privacy and consumer protections – will only help further ensure that the industry continues to grow and attract an even wider base of consumers by establishing more trust and security in digital assets. When thinking ahead, credit unions can wade in these unchartered waters to become leaders – not just fast followers – by looking internally at operations and considering the use of a single-platform technology to move the needle.

Credit unions can take steps now to set themselves up for success when it comes to staying abreast of the latest crypto regulations. In order to fully benefit from the opportunities crypto presents, they must act now to update their internal processes, systems and controls to ensure they are nimble and can be easily adjusted as new regulations come to the fore. It comes as no surprise that financial institutions often find themselves losing track of new and updated regulatory changes – this downfall will certainly be multiplied when adding newer and more complex technology like crypto to the mix. By aligning with technology partners to implement regtech capabilities, versus trying to build and update a system themselves, credit unions can find relief from the burden fluctuating regulatory changes can impose and set themselves up for proper compliance both immediately and well into the future.

Unifying a Member’s Journey

Even without crypto capabilities, many credit union members have extremely disjointed digital financial experiences. They must grapple with clunky technology and often must log into several different platforms to handle all of their financial needs – their loans, credit card payments, mortgage payments, deposits, investments and more. Similarly, credit union internal teams must steer through multiple, siloed solutions to better assist members. This process is not only antiquated, but it can also be associated with huge pitfalls: It is unnecessarily tedious and complicated, and also opens both members and employees up to greater vulnerabilities, with different platforms retaining different pieces of data and employing different compliance controls and systems. When adding cryptocurrency payments and products into the mix, the complexities between platforms will only grow.

As a result, credit unions should look to invest in a solution that helps them better engage with members and streamline all products, business lines and functions end-to-end, so there is a single entry and exit point, with as full and accurate of a profile as possible. This strategy acts as a stronghold to minimize the chances of gaps within their systems that might prevent them from detecting an issue and are able to maximize their ability to connect with and protect their members across all their functions.

Not only will this help to retain members, but it also has the potential to attract a newer generation that is tech-savvy by nature and expects digital convenience.

Setting the Stage for 2022 & Beyond

Experts anticipate a potential explosion of new cryptocurrency by as much as a factor of 10 in 2022. In a year where cryptocurrency will only become more normalized, and regulatory action will most certainly follow, credit unions must rise to the challenge. Those that are able to make digital asset trading available to their members in a clean, convenient way – while creating systems that enable rapid adjustments to new regulations as they emerge – will be futureproofing themselves as the financial system becomes increasingly digital. On top of that, and perhaps more importantly, those credit unions will also be furthering their commitment to being a true partner in their members’ financial well-being.

Vincent Bezemer is SVP, Americas for Backbase, a fintech software provider based in Amsterdam, The Netherlands.