By Karen Kislin and James White

Cryptocurrency is gaining momentum, especially with younger generations, and financial institutions must consider how to move forward with this decentralized digital currency to remain relevant with consumers. While the very nature of cryptocurrency is in its decentralized blockchain technology, regulated and federally insured financial institutions need to explore the opportunity of supporting their accountholder interests while minimizing overall risk.

Any new currency is extremely volatile until it establishes trust in the public and drives value in its utility. Cryptocurrency will continue to be innovative to accomplish this. As such, financial institutions must think creatively about how to navigate the digital currency space while providing relevant financial services to their customers or members.

Why Is Cryptocurrency Important?

Why should financial institutions care about cryptocurrency right now? Because consumer interest in the digital currency continues to grow. Currently, 36 percent of all consumers indicate they are very or extremely aware of cryptocurrency. Most notably, 57 percent of millennials and Gen Z are very or extremely aware of cryptocurrency, and another 30 percent are somewhat aware.

Additionally, 23 percent of consumers surveyed nationally said they own or have previously owned cryptocurrency. Overall demand for cryptocurrency seems relatively low, with only 12 percent of all consumers indicating they are very or extremely interested in purchasing it in the next 12 months. However, when examining the demand by generational segment, we see that 25 percent of millennials and Gen Z are very or extremely interested in purchasing cryptocurrency this year. In a time when community banks and credit unions are struggling to attract younger generations, offering cryptocurrency solutions may provide an opportunity to woo new accountholders and sustain achievable growth.

What Is the Financial Institution’s Role in Digital Currency?

Consumers who currently do not own or are not interested in owning cryptocurrency cite the lack of knowledge around the digital currency as being the main reason. Notably, the lack of regulation around cryptocurrency is less of a concern.

Cryptocurrency encompasses a vast number of offerings and use cases with numerous exchanges and coins. To support consumer interest, financial institutions must bring cryptocurrency into a more focused offering. This will help drive educational insights and minimize risk to both consumers and organizations. Offering financial literacy around cryptocurrency is where community banks and credit unions can play a significant role.

In establishing themselves as the primary financial institution for their accountholders, financial institutions are offering a one-stop shop for all their customers’ or members’ financial needs. Even though most community banks and credit unions do not hold licensing and certifications to advise accountholders in investments, they can partner with wealth management firms to offer those solutions.

Similarly, cryptocurrency is a completely different financial service. Many consumers view it as a peer-to-peer digital currency where payments are done exclusively online. Some have found the investable side of owning coins or fractional shares of coins. Just because it is decentralized and unregulated does not mean it is something to avoid. Just as you would partner with trusted investment experts, there is an opportunity to partner with trusted cryptocurrency fintechs to extend these services to your accountholders.

The priority for financial institutions needs to be education. You need to understand the risks and rewards of cryptocurrency as an organization first, then you can search for a cryptocurrency fintech partner. Community banks and credit unions must conduct due diligence to partner with a trusted entity that conducts itself in a way that aligns with your organization’s mission and vision. Ultimately, you must have a comprehensive financial literacy program around cryptocurrency for your customers and members. The priority of community financial institutions is to help accountholders make informed decisions that support their financial health and independence.

How Can Financial Institutions Engage in Cryptocurrency?

Fintechs are already exploring the possibility of pairing traditional banking products with cryptocurrency. Some ideas include paying cryptocurrency as a dividend for high-interest checking accounts. Another idea is to offer digital currency as credit card rewards. Raddon recently surveyed consumers across the country to see if these are relevant offerings. Just as awareness in cryptocurrency was higher in younger generations, so too is the interest in these possible products, with 52 percent of millennials and Gen Z being very or extremely interested.

This is an interesting idea that could benefit community banks and credit unions in more than one way. First, it will aid financial institutions in being relevant to younger generations, which will help attract and retain Gen Z and millennials. Additionally, it could support the profitability of such deposit products. By moving the dividend payment to a cryptocurrency offering, financial institutions will be reducing their cost of funds. Furthermore, the servicing of such a product opens the possibility of additional non-interest income with a small monthly subscription.

When Raddon asked consumers what they would be willing to spend to receive dividends in cryptocurrency, we found that 75 percent of those who were at least somewhat interested in receiving dividends in cryptocurrency are willing to pay a monthly fee for that privilege, and the majority of them are willing to pay a fee less than $10.

Financial institutions may also find an opportunity in offering custodial services, such as securely facilitating the purchase and sale of cryptocurrency and maintaining hardware or “hard” wallets like safety deposit boxes for accountholders.

The attraction to cryptocurrency from younger generations appears to be due to the gamification of quick, vast returns of digital asset. The opportunity for community banks and credit unions is to maintain alignment with their mission and vision by educating consumers on both the benefits and risks of cryptocurrency and providing a service channel that meets consumers’ needs. Do not simply check a box when stepping into this space. Comprehensive financial literacy, channel distribution, and availability and visibility in the branches will be pivotal in delivering your value proposition.

Read our related blog, Cryptocurrency Competition to Consider.