Thursday, October 14, 2021 | Karen Kislin
Cryptocurrency is changing the way consumers exchange value with each other, and demand is growing. There are thousands of digital currencies available today, and they account for approximately $2.3 trillion in the global crypto market. Many fintechs already accept cryptocurrency transactions. For financial institutions to remain relevant now and in the near future, they must understand the impact cryptocurrency is having on the traditional banking industry and develop a strategy for a sustainable future.
Community banks and credit unions are losing critical market share among millennials and Gen Z, and these generations represent 41 percent of the adult U.S. population. Seventy percent of Gen Z and 74 percent of millennials claim a major bank as their primary financial institution (PFI). According to Raddon Research Insights’ national consumer research, this sharp rise in PFI status has occurred over the past two years.
Convenience, mobile banking features and a desire for better customer service are the biggest drivers to leading younger consumers to establish a banking relationship. The digital convenience and perceived value of cryptocurrency has captured the attention of millennials and Gen Z. In fact, 56 percent of millennials and 46 percent of Gen Z claim to be very or extremely aware of cryptocurrency. Furthermore, 27 percent of millennials and 23 percent of Gen Z own or previously owned bitcoin.
The convenience of cryptocurrency is growing among person-to-person (P2P) platforms. The popularity of these platforms is also growing among younger consumers, which demands the attention of financial institutions. In fact, 87 percent of Gen Z and 83 percent of millennials have used them in the past two years – a considerable increase from 65 percent of millennials using P2P services in 2018.
As of April 2021, PayPal’s Venmo started to allow users to buy, hold and sell bitcoin, ether, Litecoin and bitcoin cash. Users also can share their crypto purchases with friends through Venmo’s social feed. At that time, Venmo had more than 70 million users. Venmo competes with Square’s Cash App. Square launched its own bitcoin trading option through its Cash App in 2018. Square has said its bitcoin revenue grew 11 times year-over-year to $3.5 billion in the first quarter of 2021. Square has started programs such as Square Crypto through which people can get paid in bitcoin by either becoming a bitcoin minor or a developer and designer of the technology.
Cryptocurrency capabilities are not limited to P2P platforms. In March 2021, Morgan Stanley was the first among banks to offer bitcoin funds to its clients. Goldman Sachs quickly followed, and JPMorgan is reportedly looking at its own product in conjunction with New York Digital Investment Group, LLC (NYDIG). NYDIG is a proprietary full-stack bitcoin crypto custody firm that has announced multiple partnerships within the financial services industry throughout 2021 to bring U.S. financial institutions’ accountholders the ability to buy, hold and sell bitcoin through their existing bank accounts. The goal is to enable banks and credit unions to meet the interest in bitcoin, retain and grow their accountholder base and increase non-interest income opportunities. NYDIG has announced that it is planning additional services, including debit card rewards paid in bitcoin, and a new type of bank account that is FDIC insured but pays interest in bitcoin.
Based on the latest national consumer research from Raddon Research Insights, 28 percent of consumers are very or extremely interested in having cryptocurrency as part of their banking relationship, and 29 percent of consumers are interested in having debit or credit card rewards in the form of cryptocurrency.
Cryptocurrency continues to be extremely volatile and unregulated, which gives many financial industry leaders reason to simply observe from a cautious distance. However, the emergence of this digital currency into traditional banking services is a force to be reckoned with. Millennials and Gen Z appear to be increasingly comfortable with crypto, and their demand for its availability is only growing.
Financial institution leaders must have a strategy today to help guide their decision on how long they will choose to wait and see what happens in the digital currency space. Things happening now could have an incredible impact on the traditional banking system. Consider your current business model and ask yourself how sustainable it is in relation to your ability to grow and retain younger generation accountholders. How will you continue to differentiate and provide value to millennials and Gen Z? Cryptocurrency may offer the opportunity to remain relevant among these consumers.
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