30.11.2021

How are banks promoting the massive adoption of cryptocurrencies in the US?

At the end of June, it became known that the cryptocurrency investment company NYDIG entered into a partnership with several providers of payment infrastructure for banks in the United States.

This will allow tens of millions of Americans to buy bitcoins through their banks’ payment services and store them in their accounts.

At the same time, the banks themselves hope in this way to replace crypto-exchanges for their clients. We figured out which crypto services will be available to clients of American banks and how this will affect the US crypto market.

Banks in the US can store customers’ cryptocurrencies from 2020

In July 2020, the Office of the Comptroller of the United States (OCC) allowed the country’s banks to hold and manage their customers’ digital assets. As a result, for a year now, Americans have been able to store bitcoins in their bank accounts.

This has become an important event for the crypto sector. After all, before that, the storage of cryptocurrencies was the prerogative of crypto exchanges or specialized custodian services, which must obtain an appropriate state license in order to offer services to large investors. Since 2020, such an opportunity has appeared for thousands of banks across the country.

The OSS also confirmed that banks can legally work with any registered crypto company. In the United States, there were no bans on the work of financial institutions with crypto startups before, but most national banks were skeptical of representatives of the crypto industry, perceiving exchanges and crypto startups as a risk to their reputation.

NYDIG Builds Cryptocurrency Infrastructure For Banks

The infrastructure for banks was developed by the New York Digital Investment Group (NYDIG), a digital asset management investment company. It is a subsidiary of the New York investment firm Stone Ridge, which was launched in 2017. NYDIG now manages $ 6 billion in digital assets.

NYDIG is actively working on launching cryptocurrency infrastructure for banks. For example, this year NYDIG released an API (Application Programming Interface) that allows companies to integrate Bitcoin tools into their own applications.

Also in January, the company bought a startup, Digital Assets Data, which develops data transfer solutions, and began a partnership with the fintech startup Moven. Together with Moven, NYDIG will develop and release a product that will enable banks to offer cryptocurrency custody services. As a result, this will allow NYDIG to connect approximately 70% of American banks to its infrastructure.

What’s more, NYDIG has partnered with several major payment and financial service providers that are the backbone of local banks and credit unions.

Among them:

  • Fidelity National Information Services (FIS), which provides banks with access to services such as chatbots or Apple Pay;
  • Q2 Holdings is a provider of digital transformation solutions for banking and lending. The company has over 18.3 million registered users and provides digital banking services to 10% of Americans and 30 of the top 100 US banks;
  • Alkami is the fourth largest digital banking provider in the United States;
  • Fiserv is a provider of technology solutions for payment and financial services. NYDIG and Fiserv are also working to implement additional functionality such as Bitcoin Cashback. Fiserv accounts for about 40% of all US financial institutions.

This move will allow traditional financial institutions to access cryptocurrencies and build their own crypto services for them.

“The scale of these partnerships shows both the speed and reach that the banking industry is changing, and the ubiquity and ease of access to bitcoin that we provide with our partners,” Patrick Sells, head of banking solutions at NYDIG, told The Block. …

At the end of June, it also became known about NYDIG’s partnership with NCR, an American company that develops specialized equipment for retail, banking and financial networks, as well as for the hotel and medical business. NCR holds up to 45% of this market. NYDIG’s partnership with NCR will enable approximately 24 million Americans across 650 banks and credit unions to buy and sell bitcoin through mobile apps. Hundreds of banks are already participating in this initiative, but most of them are quite small.

The partnerships entered into by NYDIG show that the company hopes to become a major crypto service provider and custodian for a multitude of banks in the United States. Based on the scale of the agreements, NYDIG will support Bitcoin buying opportunities from about half of all U.S. retail banking customers.

NYDIG responds to inquiries from banks and customers

NYDIG’s partnerships with payment infrastructure providers are due to the fact that client banks are concerned about the outflow of money from their depositors’ accounts to crypto exchanges and financial firms. Therefore, classical financial institutions want to take the place of cryptocurrency exchanges in the market.

According to Douglas Brown, President of NCR Digital Banking, dozens of companies have complained that their customers are using their savings to buy bitcoins and other cryptocurrencies. For banks and credit unions, NYDIG’s partnership with infrastructure providers is an opportunity to attract those clients looking for opportunities to invest in cryptocurrencies.

Moreover, the attitude of banks towards cryptocurrencies is beginning to change. So, according to a survey conducted in December 2020 by Cornerstone Advisors, 15% of American consumers own bitcoin or some other cryptocurrency, and 60% of them are willing to use their bank to invest in cryptocurrencies. But only about 2% of banks were interested in this last year. It seems that in just six months the situation began to change.

How NYDIG partnerships will evolve

NYDIG’s relationship with payment infrastructure providers goes through several phases. Let’s take a look at the example of a partnership with NCR.

Initially, banks partnering with NCR will be able to offer their customers cryptocurrency trading and storage through their own mobile apps. For customers, it will look like they are making crypto transactions directly through their bank. However, in reality, the coins will be held in custody service NYDIG. Banks will charge customers transaction fees and pay NYDIG for customer service.

This scheme is beneficial and convenient for banks. After all, instead of dealing with onerous regulatory requirements related to the storage of customers’ cryptocurrencies, financial institutions outsource this process, but at the same time earn on transaction fees.

“I think we will see cheaper transaction fees through banks than are currently on the market,” Patrick Sells, head of banking solutions at NYDIG, told Forbes.

NYDIG believes that with the addition of crypto services, banks will increase the use of their applications, which will help them promote and sell their other services. This has already happened with PayPal: after the payment giant allowed customers to buy and store crypto coins, the company’s application began to be used twice as often.

In the second phase of NYDIG’s partnership with NCR, NCR will take over the custody of the assets. The company will also consider using blockchain to improve its transaction processing system. Blockchain will simplify complex transactions involving many counterparties.

That being said, the ultimate goal of NCR is to make cryptocurrencies a popular medium of exchange in retail stores and restaurants. It is important to note that in total, NCR serves 200,000 retail stores, hotels and restaurants – if all goes according to plan, they will all eventually be able to accept bitcoin as payment. Also, in the future, it is planned to add the ability to buy bitcoin through 838,000 NCR ATMs around the world.

In the future, NYDIG plans to expand the list of crypto services by adding BTC cashback. The company also plans to launch a new type of bank account, which is insured by the Federal Deposit Insurance Corporation (FDIC) and will allow paying interest on deposits in bitcoins.

Big banks are also paying attention to bitcoin

NYDIG’s partnerships with payment infrastructure providers will enable approximately half of all banks in the United States to provide crypto services. How many of them will add this feature and how soon is still an open question, but now we are talking about hundreds of banks across the country. If the experiment is successful, others will follow suit.

When thousands of small banks allow customers to buy bitcoin, giants like JPMorgan or Bank of America will be forced to offer cryptocurrencies to all of their customers. At the moment, they are rather focused on providing crypto services only to institutional and wealthy clients. So, in March, Morgan Stanley provided access to bitcoin funds for clients with a capital of $ 2 million, and soon Goldman Sachs offered a similar service.

But gradually their focus shifts. In late April, JPMorgan announced plans to launch an actively managed BTC fund with NYDIG, where the crypto company will act as a custodian provider. The fund may be launched this summer.

USA is ready to accept cryptocurrencies

According to research by Crypto Head, the United States ranks first among 76 countries in terms of readiness for widespread use of cryptocurrencies. The country scored a total of 7.13 out of 10 on the Crypto Head scale.

American attitudes towards cryptocurrencies are changing rapidly. In 2018, before the start of the pandemic, only 8% of the country’s residents owned bitcoin and 68% of them did not want to buy cryptocurrencies in the United States. But already in the spring of 2021, according to a study by the Gemini cryptocurrency exchange, about 14% of Americans had cryptocurrencies (according to other sources – up to 23% or even 46%) and another 13% were going to purchase them within the next year. At the same time, about 95% of cryptocurrency owners are ready to buy digital assets on American platforms.

The US cryptocurrency industry is at a tipping point after several years of growing interest from retail and institutional investors, as well as a shift in the stance of regulators who have finally decided how to view the new asset class. In this light, the addition of crypto services by banks is one of the hallmarks of the massive adoption of digital currencies.

Banks start to compete with crypto exchanges

The banking sector is gradually adopting cryptocurrencies. This is not so much a hype as an attempt to retain customers. After all, more and more people around the world are realizing the benefits of digital assets.

In February 2020, Deputy Governor of the Bank of England John Cunliffe warned that the transition of investors to cryptocurrencies could take away so much capital that banks would find it difficult to lend. Cunliffe said clients’ transfer of their capital to digital assets and stablecoins could go mainstream.

For this reason, more and more large and regional banks will want to provide their customers with access to bitcoin. Those who do it before others will benefit from pioneering benefits.

By providing their customers with the ability to buy and store cryptocurrencies, traditional financial institutions enter into direct competition with cryptocurrency exchanges. Due to their status, banks will enjoy great trust. However, crypto exchanges give access to more assets and decentralized financial services. But in any case, ordinary cryptocurrency holders will only benefit from heightened competition.

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