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Don’t get FOMO when it comes to crypto

4 ways to get started on building digital currencies into your bank’s asset strategy

Crypto as an asset

Maybe your friends over at fintech companies have been busy posting about their latest blockchain solutions and crypto products, and you’re eager to learn what all the hype is about.

Your bank may not yet have gotten around to solidifying your crypto strategy, let alone building it into your roadmap. Despite the uncertainty within the crypto market over the past few weeks, crypto has proved to be more than just a passing trend—in fact, it’s a quickly expanding market, and there’s growing demand for banks to get into the game—so now’s the time.

Consider this: Over 46 million people in the U.S. own Bitcoin, the most widely owned digital currency. Of those, 81% report they’d move their digital investments to a bank if offered secure storage options—and 71% would switch their primary bank to one providing such services.

If banks don’t get on board with crypto, they’re likely to lose customers to financial institutions that do—not to mention exchanges, wallets, and other providers of custodial services—and fear they’re missing out on opportunities to generate new revenue streams and tap into new markets.

So, how can you make sure your bank is ready?

In this guide, we share four tips for building digital currency into your bank’s strategy—and how partnering with fintech companies can help you level up your approach and quash your crypto FOMO for good.

1. Convert the haters with solid research

First, address the concerns that have traditionally made banks hesitant to embrace digital currencies—and consider why they may no longer be as valid as they once were. This will help convince even your most skeptical stakeholders that crypto is the way to go.

  • Crypto is going mainstream. While cryptocurrency has been slow to take hold, its global market share is now worth more than $3 trillion—close to the value of Apple and Amazon combined. On top of that, about 32% of small businesses in the U.S. now accept some form of digital currency, and 18% of consumers say they’re likely to use crypto for retail purchases.

  • Regulators are getting serious about crypto. A flurry of recent activity shows broad institutional commitment to regulating crypto’s future and instilling trust in the market. In the first months of 2022, the FDIC announced it’s making crypto guidance a top priority, major crypto investment platforms joined to form the Crypto Market Integrity Coalition and President Biden signed an executive order to guarantee the responsible development of digital assets.

  • Crypto is getting easier to integrate. It’s true that crypto is a rapidly changing market. There are over 18,000 digital currencies listed on sites like CoinMarketCap (and only 180 fiat currencies in the world). Hundreds of new offerings are added each month, and their values can fluctuate wildly from day to day.

    This makes it difficult to predict how the market will shift and respond with smart solutions. Luckily, bitcoin companies like NYDIG are forging partnerships that make it easier for banks to tackle crypto and integrate digital assets into their platforms. More on that below.

  • Crypto is not the enemy. Some banks view crypto and blockchain as competitors—which is understandable given that decentralized finance models remove the middleman (i.e., banks) from financial services.

    But decentralized finance (DeFi) and traditional finance (TradFi) could just as soon be powerful partners, with the former providing the technology and vision and the latter providing the core capabilities and consumer trust.

2. Match your strategy to your business

Before you can add crypto to your roadmap, you’ll need to craft a long-term plan. That means taking a hard look at your business, evaluating your strengths and shortcomings and aligning key stakeholders around important goals and measures for success.

To ensure your crypto strategy will work for your organization, ask questions like:

  • What core competencies and values does your bank offer now, and what competencies will you need to build up to be able to handle crypto?

  • Which crypto-related services are you interested in starting with, and which would you like to expand into over time? Are you primarily interested in custodial solutions or in financial services like payments, investments and lending?

  • How can you create a seamless experience between your current and future services?

  • Do you have the infrastructure to store/move digital assets? If not, how will you build it?

  • What customer bases and audience segments do you want to target? What are your customers’ expectations when it comes to crypto, and how much support will they need?

  • How will your team need to grow to take on new product development, research, testing, risk management, compliance and financial duties?

  • Are there fintech companies or other vendors working in this space that can help you accelerate your roadmap, reduce your workloads and shorten your time to market?

It also helps to set a timeline early on—and to revisit it throughout the process to stay on track.

3. Proactively plan for the risks

The crypto market is becoming more regulated, but that doesn’t make security and risk management any less of a priority. You’ll still need to take steps to protect your business and your customers from theft, fraud, scams, cyberattacks and other criminal activity.

According to one site that tracks cryptocurrency crimes, there were 75 major incidents across six countries in 2021, involving a total loss of $4.25 billion. Since crypto transactions are irreversible, these misdirected funds are impossible to recover.

That makes it even more important to have robust infrastructures and control frameworks in place before you get into digital assets. You’ll especially want to fine-tune your tactics around:

  • Regulatory compliance: Often, the KYC/KYB, AML and screening programs banks have in place were designed with traditional currencies in mind. They may need to be revamped to account for new asset classes like crypto.

  • Ongoing transaction monitoring: It can be difficult to trace transactions in the blockchain and assess them for risk. You’ll want a security solution that monitors crypto activity across all customer transactions and instantly alerts you if anything suspicious is detected.

  • Adapting to the market: Each new cryptocurrency and digital asset comes with its own unique features and vulnerabilities, and you’ll need a comprehensive strategy for managing their different risk profiles.

  • Training: Make sure your team is up to date on crypto best practices and knows what to look for when it comes to fraud. You’ll also want to establish processes for internal audits, product reviews and security tests and to clearly define roles and responsibilities.

Keep in mind, fraud is a moving target: As crypto grows more sophisticated, so do cyber criminals. You’ll need to review your risk plan regularly to ensure you’re keeping up with the latest threats.

4. Partner with fintech companies to ease the transition

Fintech companies have largely stayed ahead of the cryptocurrency curve, providing specialized, tech-forward products that enable users to easily invest in and use digital assets.

By partnering and integrating with reliable, ready-made platforms, you can get a head start on building toward crypto, streamline your critical processes and workflows and get new products up and running quickly—without having to develop all of the components in-house.

Imagine joining forces with NYDIG to offer your customers bitcoin investments; with Tassat to facilitate blockchain-based payments; with Figure to drive blockchain lending; and with Alloy to automate compliance measures, transaction monitoring and identity decisioning.

Leveraging existing technology to break into the crypto space means you’ll build more efficiently and effectively—while linking your bank with some of the most pioneering names in finance.

Key takeaways

Your bank can take a dynamic approach to crypto by:

  • Learning about the market and assuaging your stakeholders’ concerns

  • Crafting a detailed, future-proofed plan that’s tailored to your specific business

  • Priming your risk management and compliance processes to support new asset classes

  • Leaning on fintech companies to provide easy, bespoke solutions to crypto challenges

As you think about incorporating digital currencies into your asset strategy, following these simple steps will ensure you set your new products and services up for success and make crypto FOMO a thing of the past.

Why stop there?

Moving into crypto is just one part of a promising digital transformation strategy.

Download a free copy of our ebook to learn more about how you can work with fintech companies to optimize your tech stack, expand your market, accelerate your product development, and ultimately build smarter solutions.

Check out our eBook

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