Without Crypto Services, US Banks Forgo Client Base the Size of Canada
The calcified banking sector has all the funds in the world to update their offering and move along with the crypto times. Because it is too difficult to imagine their too-big-to-fail status becoming endangered, they seem to have settled to miss the crypto boat, leaving it up to smaller players.
Expanding “Buying the Dip” Platforms
Although a regular occurrence within the cryptocurrency market, inside a week’s time span—from April 12th to April 19th—Bitcoin dropped by 7.6% in value. The good news is that macroeconomic indicators pushing Bitcoin upward aren’t going away anytime soon. Likewise, Bitcoin’s price managed to stay relatively in line with its 50-day moving average (MA).
In other words, as Bitcoin touched the 50-day MA three times during the last half a year, this presented an opportunity to buy the dip. Crypto veterans already know this to be the case, making them inured to panic-selling the digital gold. They also have a well-established routine to handle crypto assets – apps and exchanges.
However, what about everyone else who hasn’t yet taken the crypto plunge but would like to? While FinTech and DeFi alternatives to banks have proven their mettle, there is no other financial ecosystem as established as the traditional banking one. Moreover, with the launch of Coinbase stock (COIN) on NASDAQ, cryptocurrencies have entered a new territory of credibility.
Even the regulatory hurdles have largely been removed. Since the beginning of the year, the Treasury’s Office of the Comptroller of the Currency (OCC) made it possible for banks to interface with public blockchains just as they currently link to SWIFT or ACH to conduct money transfers.
So, why are banks not offering cryptocurrency assets for their clients?
Banks at Odds with their Clients’ Wishes
Courtesy of Cornerstone Advisors annual survey, it turns out that banking institutions behave just as one would suspect – in a calcified and sluggish manner. The contrast between what banking clients want to happen and what banks and credit unions are willing to offer is quite stark. While 60% of crypto holders report they would use their banks to invest in such assets, only 2 out of 10 legacy financial institutions are willing to make that a reality.
If we take Statista’s digital shoppers proxy numbering at 230 million for 2021, and place this in the context of 17% of US consumers owning or planning to own cryptocurrencies according to the CA survey, this means that 80% of banks are willing to neglect 39 million customers. That is the population size equivalent to Canada, yet banks are willing to forgo all those transaction fees and other potential income from offering crypto assets to their clients.
Moreover, 68% of current crypto holders would like to see their banks issue Bitcoin-based debit/credit card rewards, which would represent another income source. After all, every time you swipe your debit/credit cards, banks earn the so-called interchange fee.
Although this CA survey is recent, banks are not known to not conduct meticulous surveys on their own. Therefore, it would be safe to assume they already know the gap between what their clients want and what they are not willing to do. The question then is, why would that be the case?
Core Causes for Banks’ Intransigence to Accept Cryptos
As recently as January, both the American and European central bankers decided to pull out the red herring of Bitcoin money laundering from their weathered basket of rhetorical tricks. If one understands that commercial banks are completely subservient to central banks, the hesitancy to defy the wishes of their customers comes into sharper focus. In fact, they tend to parrot the exact same excuses unmoored from reality.
Recently, it has been revealed the world’s 11th largest bank steep-deep in criminality – HSBC – doesn’t merely avoid crypto assets. It goes out of its way to ban clients who have bought MicroStrategy shares due to its heavy Bitcoin investments. HSBC takes this guilt by association approach quite seriously, according to their spokesperson:
“HSBC has no appetite for direct exposure to virtual currencies [VCs] and limited appetite to facilitate products or securities that derive their value from VCs,”
Interestingly, although cryptocurrency volatility and purported criminality are the most commonly used reasons for not integrating digital assets, this never seems to come up with stocks that have lost over half of their market caps during the last year. To name just a few: TechnipFMC (FTI), Sherwin Williams Company (SHW), Tricida (TCDA), Occidental Petroleum Corp. (OXY), Invesco Mortgage Capital (IVR), and Carnival Corp. (CCL).
Accordingly, rather than taking the banks’ stated reasons for granted, it seems the virtual nature of crypto assets is the main stumbling block.
More Mundane Reasons for Banks Refusing to Integrate Cryptos
As we have seen with Coinbase through its E-Money License and NASDAQ listing, it now rivals banking behemoths the likes of Citigroup or Goldman Sachs with only a fraction of employees. It is almost impossible to catch up to such a lean business model without undergoing some major restructuring. Moreover, established FinTech companies with equally lean business models such as PayPal, BlockFi, and Square are starting to encroach into banking territory by offering affordable loans.
From this, we can conclude that large banks are not likely to enter this competitive territory any time soon. Instead, we can expect to see crypto inclusion from small, startup banks. Some of them are filling other niches at the same time. For example, Black and LGBT-focused First Boulevard bank partnered with Visa to implement crypto APIs (Application Programming Interfaces) for seamless trading and storing of crypto assets.
Another small bank – Quontic Bank – teamed up with Fidelity National Information Services (FIS) to run a Bitcoin Rewards Checking account, making it possible to earn 1.5% BTC on eligible debit card purchases. Vast Bank had already partnered with Coinbase in January to deliver full custody and Bitcoin trading. Although these examples are encouraging, it remains to be seen if their size and ATM availability will prove too much of an obstacle for bank-switch incentive.
Have you used virtual banks like Revolut or N26? Do they have what it takes to supplant traditional banks? Let us know in the comments below.