The rise of digital assets and blockchain technology has given rise to a new revenue stream for financial institutions: the integration of digital assets into their suite of services.
While the path to adopting these assets can be complex, it offers a promising avenue for generating additional income sources, attracting new customers, and remaining competitive in the ever-changing financial landscape.
This article explores the benefits of digital assets for banks and outlines the ways to incorporate these assets into their offerings.
Integrating crypto services
For banks hesitant to explore the world of digital assets:
- The crypto market size is expected to grow to $81 billion by 2030.
- Cryptocurrency revenue is projected to reach $37.9 billion in 2023.
- The cryptocurrency banking market was valued at $1.49 billion in 2021 and is expected to reach $2.52 billion by 2029.
- The number of digital asset holders is expected to reach 994.30 million by 2027.
- 55% of Americans aged 18-34 plan to buy cryptocurrency in the next five years.
- Mastercard research has revealed that 65% of customers are interested in their bank offering crypto services.
- According to Visa, 35% of crypto owners surveyed indicated that they are likely to switch to a bank that offers crypto products within the next 12 months.
- The global tokenization market size was valued at $2.39 billion in 2022 and is projected to grow from $2.81 billion in 2023 to $9.82 billion by 2030
As the financial world undergoes a digital transformation, banks must adapt to the changing demands of customers. Crypto services that you usually hear about include custody, trading, tokenization, and remittances. However, this can be daunting given the risk, complexity, and equity needed. And many are far from being viable yet.
The first step is adopting a passive overview, allowing your customers to connect their crypto wallets to their accounts, and carrying out automatic AML risk assessments. That’s where partnerships with crypto-native fintech firms come in. From there, the possibilities are huge, and these firms are ready to help you create risk-free offerings. Digital asset services offer several advantages that banks can harness, including the following.
Diversification of revenue streams
By incorporating digital assets into their offerings, banks open new channels for income. These encompass transaction fees, custody fees, new asset classes, and trading commissions tied to digital assets, particularly attractive when conventional interest rate environments are at historic lows.
Attracting a new breed of customers
The cryptocurrency ecosystem has fostered a large community. Banks that integrate digital assets position themselves to attract new demographics.
Crypto-savvy customers: These customers seek secure and regulated ways to manage their digital assets, and banks that provide such services stand to gain new clientele.
Younger generations: Gen Z and Millenials make up over 94% of crypto buyers, although Gen X still outspends them. With record low numbers of young people using banks—62% of Gen Z users don’t even have a traditional bank account—banks who offer crypto services can start to attract the new generation of earners.
Incorporating Digital Assets: Charting the Path Ahead
Banks have two primary choices for the integration of digital assets:
- In-House Development: Banks can opt for the internal development of solutions to incorporate digital assets. This path, although affording complete control, carries substantial costs encompassing both development and regulatory compliance.
- API Integration: Third-party APIs enable banks to seamlessly integrate digital asset services into their pre-existing infrastructure. This approach offers customizability, flexibility, and economies of scale in terms of development time and expenses.
Partnering with crypto-native fintech firms offers the most cost-effective and streamlined solution. These firms specialize in providing robust, secure, and regulatory-compliant API solutions, allowing banks to focus on their core competencies while extending their service offerings effectively.
Navigating the regulatory landscape
Integrating digital assets into banking services can be a labyrinth of regulatory requirements. As a financial institution in the EU, you will be subject to different regulations from a CASP (Crypto-Asset Service Provider). Still, there are certain standards and regulations you must adhere to.
Here, partnerships with crypto-native fintech firms play a pivotal role. Through partnership and the use of APIs, banks can integrate crypto services seamlessly while ensuring compliance with regulations. This includes adherence to the MiCA (Markets in Crypto Assets) Act and AML (Anti-Money Laundering) and CFT (Counter Financing of Terrorism) requirements.
Embracing the digital revolution
The benefits of integrating digital assets into banking services are undeniable. They offer new revenue streams, attract a new breed of customers, and position banks at the forefront of financial innovation. The choice between in-house development and partnerships with fintech firms depends on each bank's unique circumstances.
