Crypto adoption slow in Digital-First Banking

Cryptocurrencies and other crypto-related technologies have gained momentum among consumers in recent years.

What was once an obscure digital technology is now quite mainstream, with data from PYMNTS indicating that 23% of Americans have owned crypto in the past year. This number is likely to increase. A survey found that more than 46 million Americans report that they are likely to buy cryptocurrency in the next year.

There has also been a notable growth in bitcoin ATMs, or BTMs. Globally, the crypto ATM market was valued at over USD 75 million in 2021 and is expected to grow at a compound annual growth rate (CAGR) of 59% from 2022 to 2028.

The astonishing rise of crypto is happening against a backdrop of a broader digital transformation sweeping through the financial services industry, driven by financial institutions (FIs) responding to consumer interest in digital products and services. Overall, FIs have restructured their offerings to meet consumers’ digital financial needs, but when it comes to cryptocurrency adoption, the banking industry has been much slower and more cautious.

This month, PYMNTS examines how banks have been slow to embrace crypto-related product offerings despite significant consumer interest in doing so.

Banks have little crypto involvement

Although many consumers use cryptocurrencies as a form of payment, crypto is also often used as an investment instrument. However, banks have been hesitant to embrace crypto in this way. A survey of private global banks by the Basel Committee on Banking Supervision (BCBS) found that only seven out of 178 banks had direct exposure to cryptocurrency. While more than 100 of the banks conducted some crypto-related activity — such as trading on customers’ accounts — none of the banks directly reported cryptocurrency holdings as long-term investments.

The BCBS report noted that due to traditional FIs’ lack of involvement, crypto trading and storage has largely been left to unregulated crypto exchanges, essentially forming a “shadow crypto-financial system.” These exchanges have proliferated as crypto becomes more popular.

Despite an incremental expansion of crypto exposure, banks still do not see crypto as an immediate priority. According to the Federal Reserve, two-thirds of banks do not see distributed ledger technology (DLT) and crypto-related products and services as a strategic imperative for growth in the next two years. More than 60% of banks also saw DLT and crypto-related products and services as unimportant for liquidity management in the next two to five years.

Another survey found that eight out of 10 FIs have no interest in offering cryptocurrency investment services to their clients, with only 1% of FIs reporting being very interested in doing so. Overall, while some banks have started dipping their toes into crypto, most have not and are not particularly interested in doing so at this point.

Consumers are open to the banks’ facilitation of crypto access

While banks have been less interested in offering crypto-related products and services, consumers’ interest in crypto continues to grow and they are open to using FI’s offerings in this area. A survey found that 60% of crypto owners would definitely use their banks to invest in crypto if given the opportunity, and 32% reported that they might be interested in such a service. Only 4% of respondents said they would not use banks’ crypto-related investment services. The same survey found that 68% of crypto-owning consumers are very interested in debit or credit card rewards based on bitcoin.

It’s understandable why banks have so far been reluctant to jump into the crypto world. Despite their increased popularity, cryptocurrencies remain volatile. While there is still a lot of uncertainty on the regulatory front, the banks also have their hands full developing other digital offerings.

However, FIs have an opportunity to satisfy their customers’ interest in cryptocurrency. Some major banks, such as Chase, already give consumers the ability to link their Coinbase accounts to their traditional bank accounts. Other FIs and FinTechs are also starting to release products that enable customers to access cryptocurrencies more easily. Crypto is not going away, so banks should learn how to evolve their products and services accordingly.