Why Should Credit Unions Still Consider Crypto?

Institutional momentum and adoption of new digital asset offerings for bank customers and credit union members remains strong despite market headwinds. Yet many credit unions are unaware of how digital assets can be added to their product offerings and handled safely. And as investor interest in crypto increases, it will become increasingly important for credit unions to understand the benefits and risks of adding crypto to their offerings.

Here’s a look into why credit union crypto offerings are of interest to investors and how crypto friendly credit unions are better supporting their members.

Credit Union Crypto Basics: What’s Fueling Investor Interest?

Digital assets can be used to generate wealth, pay remittances and more. For this reason, motivations for investing can vary greatly between investors. According to a recent report by Morning Consult, “The Crypto Report: Our Analysts on the State of Cryptocurrency,” 63% of those polled valued crypto due to its ability to yield investment returns; 44% said it was an important portfolio diversifier and 43% viewed crypto as the future of money.

During each month that these participants were surveyed, about 23% said they planned on increasing their cryptocurrency holdings. Many investors are also interested in changing how that crypto is held, with the recent PYMNTS and PSCU report “Credit Union Innovation: Cryptocurrency as a Key to Member Loyalty” revealing that 57% of crypto owners are interested in accessing their crypto through their financial institution. Additionally, 67% of credit union members want more payment options and a quarter of these members held crypto within the previous year.

As the numbers above reveal, institutions have failed to keep pace with investor interest in crypto. Further supporting this point, the nonprofit BAI’s “2022 Banking Outlook Report” shared that over half of millennials and Gen Zers were already invested in crypto in 2021. However, 76% of financial institutions had no plans to offer crypto. Additionally, a Cornerstone Advisors report showed that only 9% of credit union executives planned on offering cryptocurrency investing services in 2022.

If credit unions want to better support their members, offering crypto seems like an important step. Otherwise, their cryptocurrency users may go elsewhere. However, misinformation – or sometimes, lack of information – has led to hesitation on the part of credit unions. In turn, this hesitancy has caused missed opportunities for both credit unions and their members.

Crypto Credit Union Risks and Risk Management

Many financial institutions are cautious around cryptocurrencies due to their presumed security risks and volatility. To a degree, this caution isn’t a bad thing. All assets come with risks, and those risks must be understood and precautions taken against them. However, these concerns become an issue when they impede adoption, rather than encourage responsible investing.

Many of crypto’s risks are exaggerated, misunderstood or outright fabricated. For instance, there is a misconception that crypto crime is rampant and impossible to stop. In truth, over 99% of crypto’s transaction volume in 2021 came from lawful activities, according to Chainalysis. Additionally, while it’s always better to prevent a crime than to try to recover from one, the blockchain can make it easier to track and locate lost funds, while also making it harder to steal them. And while it’s true that crypto is unregulated, much work is being done to develop and ratify concrete legislation.

Crypto volatility is also commonly cited as a concern. Although crypto experiences extreme highs and lows, ups and downs are expected of all asset types. Crypto may have more risks, but it also has the potential for higher rewards. For this reason, an individual credit union member’s risk tolerance must be accounted for, but that’s true of any investment.

In short, crypto can open doors to new wealth management opportunities, so long as it’s handled with the same respect, care and caution as any other asset. Additionally, credit unions should consider offering crypto for the simple fact that their members want to invest in crypto. If a credit union can’t support digital assets, their members might seek out other credit unions or financial organizations that can. Credit unions that wait instead of building now are potentially missing out.

How Can Crypto Friendly Credit Unions Responsibly Offer Digital Assets?

In 2021, federal regulators gave the OK for federally insured credit unions to start partnering with crypto providers. Since then, the NCUA has more specifically approved of the use of blockchain technology by credit unions. In the latter case, the announcement specifically acknowledged how crypto technology can help credit unions better serve their members.

However, many of these crypto friendly credit unions only offer access to a handful of cryptocurrencies. This can be an issue when a credit union member wants to invest in a digital asset that the credit union doesn’t support. Furthermore, some credit unions lack the proper infrastructure to provide access to digital assets entirely.

It’s important to build your products on infrastructure that supports the offerings you want today and in the future. This includes having token support for current member requests as well as potential requests down the line.

Michael Garrett is SVP and Head of Banking and Trust Operations at Prime Trust, a financial infrastructure platform provider based in Summerlin, Nev.