What banks need to know about Nucoin and beyond

Nubank has made headlines this week with the launch of its own cryptocurrency, Nucoin. This move stands in stark contrast to recent crypto bans by UK banks, but could position the neobank to become a pioneer in next-generation banking. It will probably also inspire other actors in banking with a favorable view of cryptocurrencies.

Nucoin will be central to the bank’s loyalty program, offering a safe and secure gateway to cryptocurrency for its 70 million customers across Brazil, Mexico and Colombia. This move by Nubank contrasts with recent announcements by UK incumbent banks, Nationwide and HSBC, which plan to limit customers’ ability to buy cryptocurrencies. Meanwhile, neobank Starling has gone one step further by banning all crypto transactions outright. The popularity of cryptocurrencies and NFTs is on the rise, with 21% of Americans reportedly owning cryptocurrency as of 2022. Additionally, the rise of B2B companies offering “crypto-as-a-service” is driving this trend even further. As we look ahead to 2023, traditional banks and neo-banks face an important decision to make as they consider the potential benefits of offering cryptocurrency as a catalyst for their next-generation products and services. This year is a pivotal moment for the financial services industry as it navigates the rapidly evolving world of digital assets.

Different views from banks

Based on recent initiatives and announcements, banks’ attitudes towards cryptocurrency can be roughly classified into four categories:

1. Crypto is a vehicle for financial crime
2. Crypto is a means of gambling and speculation
3. Certain products, namely stablecoins, can serve as a means of financial security
4. Crypto can serve as a next-generation way to improve customer loyalty and product innovation

Starling Bank appears to fall into the “financial crime” category, as it has imposed a blanket ban on all crypto transactions. In a tweet explaining its stance, the bank said: “We consider crypto activity to be high risk. We have decided to prevent all card payments to crypto merchants and implement additional restrictions on outgoing and incoming transfers.

In contrast, HSBC and Nationwide appear to be in the “gambling and speculation” camp, as they have not introduced a complete ban on crypto transactions, but have limited transaction sizes and card types. Credit cards cannot be used to make payments to crypto exchanges, with daily limits imposed on debit card transactions.

Meanwhile, ANZ and NAB are taking a more progressive approach and believe cryptocurrency, namely stablecoins, can appeal to a handful of use cases, such as international payments. Both banks are launching stablecoins pegged to the Australian dollar in Australia. However, these stablecoins may have limited appeal to consumers, given that Australian consumers and businesses are not currently facing a highly devalued currency like Lebanon or Venezuela, where demand for cryptocurrency and stablecoins is strong.

Nucoin, new future?

Nubank falls into the latter category. It will form the centerpiece of a loyalty program for 70 million customers across Brazil, Mexico and Colombia. Nucoin looks safe and milder than speculative and exotic. The bank refers to it as a “token” before explaining that it could be a cryptocurrency. Customers can earn Nucoin in various ways, including spending with Nubank cards and participating in NuCommunity, with rewards including cashback and lottery tickets.

Nucoin has already made waves in the financial industry, and its mid- to long-term ambitions have generated even more interest. According to Nubank, Nucoins will initially only be available within the Nubank ecosystem, sold in-app between Nubank customers. However, the company plans to expand the Nucoin network to include other companies that offer digital currencies in their loyalty programs. Nubank allows users to buy and sell a handful of cryptocurrencies within its app, and eventually it can enable Nucoins to be exchanged for other cryptocurrencies or redeemed for fiat. However, this has not yet been made public as part of the roadmap. There will be many in the industry who follow the development of Nucoin closely.

Will incumbents miss out?

Incumbent banks have played catch-up with neobanks when they offer exceptional customer experiences, digital current accounts, fast and cheap payments and card services. They have also been left behind in the mobile and micro-investing wave led by Robinhood, FreeTrade and Trade Republic. A handful of banks are determined not to be left behind in the cryptocurrency revolution. Some, such as Nubank and Revolut, see this as a significant point of differentiation. Incumbent banks and new banks increasingly have to face a critical decision regarding their stance on cryptocurrencies. For those with a favorable view of cryptocurrency, the market is ripe for innovation.

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