Most crypto owners would prefer to interact with digital assets through their banks and other traditional financial institutions, according to Navigating Crypto: How Banks and Other Financial Intermediaries Can Integrate Crypto Assets.
In the US, as many as 65 million customers—most of whom do not own any digital assets today—are potential owners, and would use digital assets through their existing financial institution if available.
The new report from Oliver Wyman commissioned by Ripple, examines how banks and other intermediaries are increasingly exploring offering digital assets to their customers and outlines the necessary requirements to do so.
This involves accommodating a range of technical, commercial, organisational and regulatory factors to enable customers to interact with crypto, which must be done strategically in order for banks and FI’s to position themselves for success in the short and long terms.
“Financial institutions that develop capabilities to serve this market have an opportunity to differentiate themselves in the near term—and develop capabilities in the longer term that may position them well to broaden out their digital asset services,” says Nikolai Dienerowitz, Oliver Wyman Partner in London.
“For example, a bank investing in technology to manage the nearly-instant settlement with digital assets today may be better placed in the future if they want to serve customers with CBDCs.”
A Deep Dive into the Current Crypto Landscape
Broken out into five distinct sections, the paper explores the evolution of the market and highlights its rapid growth over the last few years, extrapolating along its current growth trajectory. (If extrapolated, there could be as many as 1 billion global crypto asset owners by 2024.)
While the authors acknowledge the future of crypto is still uncertain and hinges on three primary factors – regulatory oversight, new use cases and end-user demand – they say the potential to serve these customers and become the primary gateway between fiat and digital assets is real for banks and financial intermediaries.
Those that do so have the opportunity to position themselves for success in a potential future in which digital assets are more prevalent.
What Do I Need to Offer Crypto Services?
For banks seeking to capitalise on this opportunity, the paper outlines seven core technical requirements (e.g. liquidity solution, settlement network, etc.) and suggests a five-step checklist for how to begin this process, including goal setting, identifying key requirements, determining a development strategy, accounting for risk and regulation, and establishing a delivery strategy.
Since many organisations lack the expertise and capabilities to build and manage these requirements in-house, the report highlights the benefits of a partnership strategy to help maximise speed to market and fully realise the customer opportunity.
In support of that strategy, it also provides a high-level overview of the types of crypto partners available and how each fulfils specific strategic requirements.
“Large banks with commensurate tech budgets typically have advantages in realising economies of scale in investing in new technology capabilities,” explains Eric Czervionke, Oliver Wyman Partner in New York.
“That may be less true in crypto where most banks will rely on partners to offer new services to their clients – so smaller banks may compete on relatively more equal footing.”
What’s Next For the Market and Financial Institutions
Ultimately, the paper predicts that those banks and financial providers that move quickly and decisively to meet demand can become vital members of the crypto market.
Those that adopt a “wait and see” approach run the risk of being crowded out by competitors, including crypto-native firms that will continue to build better products, attain bank-level security and convenience features, and gain greater brand recognition and trust.
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