How Members Can Easily Invest: Credit unions partner with fintechs to provide new services
In May 2010, two large pizzas were purchased for 10,000 bitcoin. Since then, the value of bitcoin and other cryptocurrencies has exploded, and one bitcoin would buy thousands of pizzas.1
As consumers’ knowledge and understanding of digital currency grows, financial institutions have explored ways to offer access to the asset without the risk and volatility associated with the initial exchanges.
In December 2021, the National Credit Union Administration (NCUA) gave federally-insured credit unions the green light to partner with third-party digital asset providers to buy, sell and hold digital assets with the third-party outside the credit union.
Visions Federal Credit Union began a partnership with NYDIG to offer access to bitcoin investment to its members in January 2022, taking time to plan the introduction. A strategic roadmap that included development of educational materials for members and employees to create awareness and understanding, as well as creation of the branded tool, led up to a launch in June 2022.
Offering access to bitcoin investment benefits members as well as the credit union, said Cynthia Schroeder, senior vice president of digital assets at Visions. “We are showing our members that we are innovators, and we offer them a chance to learn more about digital currency,” she said. “They can easily move money from their credit union account to a bitcoin account through their online and mobile app.”
There has been obvious interest from members. In the first few weeks after introducing the product, Visions had 1,100 members sign up for a virtual wallet.
“This is an opportunity to increase engagement with members because research shows that people check their digital account balances multiple times each day, which means they see our brand and our messages more,” said Schroeder. Another positive for the credit union is the fact that money transferred from the checking or savings account to the bitcoin investment account comes back to the credit union when the member sells the asset. “Previously, a member would withdraw funds to purchase bitcoin on another exchange, and those funds might not come back to Visions.”
“It’s important for us to offer members access to cryptocurrency and to offer a better risk-based choice versus other cryptocurrency exchanges,” said Joe Keller, vice president of digital assets at Visions. “We provide a better controlled environment, a closed loop system, that minimizes the risks for hacks and eliminates the risk of scams.”
Overall, the credit union industry is still in the very early adopter stage of cryptocurrency, said Greg Varnell, vice president of product and development for the Q2 Innovation Studio. “NYDIG, which is integrated to the Q2 digital banking platform, offers credit union members a way to buy, sell and hold assets in a way that complies with NCUA guidelines,” he said. “Unlike other exchanges that require passwords, certificates or keys that can be easily lost, access to the cryptocurrency account is handled through the member’s online account or mobile app, creating a closed interface that adds an extra layer of security.”
When evaluating fintech partners for cryptocurrency, Varnell suggests:
Look for a company that focuses on a “compliance-first” approach to development. This is essential as the regulatory environment is evolving as technology evolves.
Evaluate the features that mean the most to your members, such as ease of use, security and real-time transactions. These features can differentiate the credit union from other financial institution offerings.
Understand the cost of integration, operation, and support.
“The interesting thing about costs is that a lot of programs are financially positive—they are not a cost center, they are a revenue-producer,” said Varnell. “There are no upfront costs for implementation and transactional fees from member purchases go to the fintech and the credit union.”
As credit unions expand their use of digital tools, it does affect staffing, but Varnell has not seen any additional staff required to implement a cryptocurrency service offering. “I have seen credit unions look for expertise and industry knowledge related to digital services as they add to their staff and leadership teams,” he said. “This is a trend that will continue as credit unions innovate and add more digital services.”
Underlying Technology Promises Greater Efficiencies
While credit union members may enjoy and focus on access to cryptocurrency, it is only a small part of the innovative opportunities the technology provides. For years the digital assets team at Visions has focused on educating themselves to better understand the underlying technology for cryptocurrency and how it can apply to more than digital wallets, said Schroeder. “We’re excited about the efficiencies blockchain technology can provide in other areas by automating processes in activities such as payment processing or escrow analysis.”
The NCUA also recognizes the opportunity presented by technology and in May 2022 issued a Letter to Credit Unions clarifying expectations for credit unions contemplating the use of new or emerging distributed ledger technologies.
“Credit unions need to recognize the significance of cryptocurrency’s underlying technology and begin evaluating how it can be applied in their organization,” said Keller. “Learning about it now while the opportunities are emerging and identifying how it will help members and the credit union is critical.”
References
A Brief History of Cryptocurrency. https://www.cryptovantage.com/guides/a-brief-history-of-cryptocurrency/
