Developing an innovative digital asset strategy

As bank executives grapple with low profit margins and competitive pressures, community and regional bankers must find ways to retain clients, deepen relationships, and attract new clients. Innovative new revenue streams in untapped markets may help banks improve margins, ease competitive pressures, and continually improve relationships with new and existing customers.

Innovate with Digital Currency Opportunity

Digital asset services offer a unique way for banks to participate in a rapidly growing market and generate new revenue streams. It also provides a new way to attract and engage customers.

According to a Raddon report, financial institutions are interested in cryptocurrency “because consumer interest in digital currency continues to grow.
currentlyAnd 36 percent of all consumers indicate that they are either fully or very familiar with cryptocurrency. Notably, 57 percent of millennials and Generation Z are either fully or very familiar with cryptocurrency, and another 30 percent are somewhat knowledgeable.”

No matter its size, no bank can afford to ignore this growing market. Conscious bankers should assess the demographics within their markets and assess their appetite and desire to participate in the cryptocurrency market.

instant opportunity

Through a digital asset offer relationship, banks can provide their end customers with the ability to buy, sell or hold digital assets. Offering digital assets to bank customers can provide assurances that their banking partner can help them participate in a new type of financial network.

Recent research from Cornerstone indicates that banks have a great opportunity to provide Bitcoin access to their customers. Most consumers, 60% of those who currently own cryptocurrency, use the ability to invest in digital assets through their banks.

A variety of opportunities emerge for financial institutions that can act as trusted advisors and service providers to their clients. The following use cases provide a set of starting points.

Potential Bitcoin Use Cases, Components of Digital Asset Strategy

buy sale contract

By offering digital assets, bank customers can buy digital assets through their trusted banking partner and fund their purchases from their bank accounts. The bank’s core technology partner must provide a pre-built integration to conduct or hold buy, sell or hold transactions between the banking ecosystem, the regulated Bitcoin (BTC) trading partner, and the custody partner.

In this type of arrangement, the partner provides custody services and helps facilitate the execution of bitcoin transactions; The bank never has to hold or trade bitcoin, but the bank does maintain its primary relationship with the customer. The income generated from these transactions helps increase fee income, which is a source of income that is currently under great pressure.

As Kiaran McMullan, CEO of Suncrest Bank, expressed in a recent S&P Global article:

“For Suncrest, we see this as a way to innovate and respond to changing customer needs and the changing demographics of our customer base,” McMullan said. “In the long-term, we consider it a good potential non-income line of business.”

Digital Asset Rewards

Bonus programs generate customer loyalty and help build basic deposits. But travel points and cashback programs are outdated. Banks considering rewarding debit card activity for customers can not only stand out in a crowded field, but they can also offer a relatively low-risk way for customers to explore the brave new world of digital assets.

One of the community banks offers such a program, in which it pays 1.5% on purchases in the form of bitcoin rewards. Customers can hold bitcoin as a store of wealth or exchange it for US dollars with full redemption every month.

BTC Interest Payments

Banks have long used interest on checking and savings accounts to attract and retain customers. However, over the past decade, banks have found it increasingly difficult to offer competitive interest rates to customers.

Opportunities may exist to create a deeper interaction with customers by bundling traditional banking products with cryptocurrency tools.

One example is an interest program such as Bitcoin where the end customer chooses the option to receive the earned interest on a CD or a savings account and the interest is credited to their digital custodian account in the form of Bitcoin.

With the Bitcoin interest program, banks can offer customers economically viable interest payments, while the customer earns cryptocurrency in a frictionless manner. The strategy of attracting and retaining customers with differentiated interest payments is made possible by digital assets, opening the door to many opportunities that combine traditional banking products and cryptocurrencies.

What is required to get started

To explore any of these use cases, bankers must first take an open and transparent stance with regulators.

To this end, financial institutions should consider matching with a processing partner who can bring to the relationship a proven history and experience in navigating government and regulatory agencies in the cryptocurrency domains.

Connecting with regulators and embarking on a wise approach to exploring the digital asset market sets your bank to start taking advantage of a new and emerging win-win opportunity with your clients.

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