Why Crypto Users Come to Credit Unions | Payment source

True to its name, First Tech Federal Credit Union wants to be at the forefront of new technology trends, even if that means offering cryptocurrency services before mainstream demand.

“If and when the markets evolve to the point where consumers can actually pay their bills with digital currency, we will be at the forefront,” said Greg Mitchell, president and CEO of the $15.9 billion San Jose credit union. of assets.

First Tech plans to roll out an option for members to buy and hold Bitcoin in a digital wallet through a mobile app. The credit union will inform members about the risks of crypto investing, including the fact that crypto assets will not count as funds insured by the Federal Deposit Insurance Corp. or the National Credit Union Administration.

Several credit unions have already entered the fray this year, following the regulator’s approval of third-party crypto services, despite the volatility in many currencies’ valuations that removed $2 trillion from the crypto market. But while credit unions are eager to get involved in cryptocurrencies, many are still unclear about which ones are safe to deal with and how to offer appropriate services.

Mitchell acknowledged that market trends have been disruptive, but that has not dampened consumer demand.

“There is a clear desire, especially from a younger demographic, to be able to have a trusted cryptocurrency and a desire to be able to use it to purchase goods and services in the future,” he said.

And that desire is particularly strong among credit union members.

Credit unions and crypto

Thirty-nine percent of credit union members own crypto, according to a report from June from the Norwegian Credit Union. Only 17% of non-members owned crypto, the same report found.

This affinity for crypto may stem from the same desires that motivate people to choose a credit union over a bank. African American and Hispanic consumers, who had higher crypto ownership rates in the report, are using cryptocurrencies as an alternative to traditional banking or payment services, said Ligia Vado, senior economist at CUNA.

Hispanic voters led in ownership with 48%, compared to 36% of black respondents, 25% of Asian respondents, and only 22% of white respondents said they owned crypto. “When it comes to racial disparities in crypto adoption, one of the main reasons is that African Americans and Hispanics tend to have less trust in mainstream economies,” Vado said.

Among Hispanic Americans, cryptocurrency has already gained wider adoption due to government-sponsored growth of these markets in Latin American countries, Vado said. In many cases, governments promote the use of stablecoins, which attempt to tie their valuations to a government-issued currency to avoid the volatility experienced by Bitcoin and other cryptocurrencies.

She cited the example of Argentina, where “the stablecoin market grew sixfold in 2021. And they use cryptos as stablecoins, especially to hedge against inflation and devaluation of the national currency,” Vado said. In addition, El Salvador made Bitcoin an official national currency along with the US dollar in September.

For migrant workers in America, crypto also makes it easier and cheaper to send money across borders to family members in their country of origin, Vado said.

friend system

Credit unions don’t yet have a common approach to crypto, but “some credit unions are looking at these partnerships as strategies to support membership acquisition” by offering the opportunity to try out crypto through a controlled broker-dealer partner, according to Andrew Morris, senior advisor for research and policy at the National Association of Federally-Insured Credit Unions.

Since the National Credit Union Administration granted permission December for credit unions to partner with third-party groups to offer crypto services, several have stepped up.

Lou Grilli, senior innovation strategist at credit union services organization PSCU, says he’s in meetings every week with credit union board members or leadership teams to discuss adding some sort of crypto service.

Interest is coming from all over the United States, although only a few are live today with crypto services, Grilli said.

“You can count on two hands of credit unions that are actively doing this, but many, many more are in line,” Grilli said.

Visions Federal Credit Union in Endwell, New York, launched a product this January buy, hold and sell Bitcoin through a partnership with Bitcoin investment fintech NYDIG. Knowing that the product was not for everyone, it limited the campaign to members who would be most interested. “It was more about educating the membership” about Bitcoin, said Joseph Keller, vice president of digital assets at Visions.

However, there was one long coming. The $5.6 billion Visions property had increasingly seen members transfer funds out of their accounts and into crypto exchanges such as Coinbase and FTX, Keller said.

Member response to the Bitcoin product has been mixed so far, Keller said. There has been “steady growth” of member interest in it since its launch, but nothing dramatic, he said.

But that is to be expected.

“It’s more about making sure we’re staying in line with where financial services in general was going,” and building trust as a resource for the crypto-curious, Keller said.

And even the early adopters are getting up to speed themselves. At First Tech, the credit union plans to support only the most well-known cryptocurrencies.

“We’re not going to be like a Coinbase and give you Dogecoin and all kinds of other things that might have holes in them as it relates to that trust or security,” Mitchell said, referring to the DOGE cryptocurrency token that despite for its popularity, was originally characterized as a joke.

If credit unions plan to limit their crypto services, they need to offer something that the better-known crypto exchanges don’t. And as nonprofits, they can offer lower fees, PSCU’s Grilli said. Other features they could offer include a credit union-branded crypto wallet, rewards and factoring crypto holdings as assets in loan reviews, Grilli said.

Credit unions’ outreach seems to be yielding results.

“Prior to the start of the crypto winter, the vast majority of the money was flowing out” of credit unions when members wanted to try crypto, Grilli said, observing that it was “not that unusual” to see a quarter of a million dollars a month flowing out of an average credit union size to the top 10 or 20 crypto exchanges. “Now we’re starting to see some money flowing back from the exchanges back to credit unions.”

Credit unions also need to provide some education to their members about the risks they take when engaging with cryptocurrencies, even at a regulated financial institution, Grilli said. This education could also help credit unions differentiate their services from crypto exchanges, he said.

“It’s still so new that we’re just seeing these things develop, like where are the hard and fast resources that you can go to, who is the gold standard for education?” Grilli said. – We are not quite there yet.