Banks must start offering cryptocurrency wallets before they get left behind, argues guest writer Bijan Shahrokhi at Venturebeat.
Surge in Price Results in Investor Interest
Shahrokhi, senior product manager in the financial industry, and previously the co-founder and CEO of Virtual Next, has a few suggestions as to why banks should adopt cryptocurrency wallets.
With the current surge in cryptocurrencies’ value, they are quickly becoming a new global market for assets and banks are being left in the dust.
Shahkrokhi notes:
The market cap of cryptocurrencies has grown from less than $30 billion in March 2017 to over $110 billion in June 2017, and this is just the beginning.
The sheer speed of the technology and money transference can easily work against the investor, especially with so many rogue interests in the field, with exchanges like Mt.Gox and Crypsty disappearing overnight. Personal internet security is important too to protect your own coin storage from hackers. Banks do offer a security that only a long established institution can bring.
Whilst security like this is already achievable to Bitcoin users in the form of a hardware Trezor wallet, only banks can truly bring a veneer of historical accountability.
Banks’ advantage over new cryptocurrency startup operations, such as Coinbase is tangible but superficial. Investors already trust traditional banking institutions and while this is purely a superficial viewpoint, as companies such as Coinbase are regulated and insured too, it is a psychological reality when it comes to issues of trust, especially when large sums of money are involved.
Banks Can Address a Real Pain Point for Their Customers
“Cryptocurrency investors are concerned about trusting recently established organizations to hold their assets,” claims Shahrokhi.
People implicitly trust banking institutions and any bank entering the cryptocurrency field could solve real financial problems already facing their customers. Transferring money internationally without high bank transfer charges is an area cryptocurrency can certainly help.
Early cryptocurrency adopters and developers may certainly question the ethos of a centralized banking system appropriating a decentralized banking solution. Questions also remain: Will savings banks make be passed onto their customers? What will happen to their employees potentially displaced by the technology?
Traditional banks already have the trust of their customers, especially with the insurances they offer. They should press this advantage while they still can. Either that, or buy their own existing online exchange, but could they, or would they even do this with their current market understanding?
Banks currently have the competitive advantage in the industry with a good chance the solutions they offer would become proprietary. Taking and profiting from an open source solution that provides a decentralized platform.
Banks Will Stay Relevant
“Cryptocurrencies such as Bitcoin might become more popular than government-backed currencies one day,” says Shahrokhi.
The only way for a bank to stay relevant, at least in the cryptocurrency field, would be to secure their relationships with cryptocurrency owners. Any time banks are not investing in research and cryptocurrency adoption is time that other startup companies are spending building a solid, trustworthy reputation.
It is possible that a big name bank could simply buy a cryptocurrency exchange if they wanted to diversify. However, the risk is that Fintech companies stand a very real chance of usurping the old dinosaurs of finance, especially in regard to international banking and the need to keep apace with globalization.
They Will Start Learning by Doing
“Banks must start learning how these markets work, discover a business model and soon, or else fintech companies will make them irrelevant,” says Shahrokhi.
Exactly what do regular bank customers want? Do they know what they want? How would they even package a cryptocurrency wallet to a new consumer already satisfied making micropayments with Paypal and Apple Pay? Would cryptocurrency be used for daily purchases? Should banks treat cryptocurrency products as long terms assets like gold?
These are all questions a bank has to ask itself. Research and hard data are needed in this field to determine, among other things, just how their customers would appropriate the technology if offered. Educating the consumer is also part of this, with many customers either unaware or phased by complexity when it comes to the field of cryptocurrency.
Banks can only learn by monitoring customer behavior as they actively use cryptocurrency, discovering its future real world use. Only by doing this can they create the data they need that their fintech competitors already know.
Banks Can Help Shape the Future of Cryptocurrency Regulations
“Banks can influence the future of cryptocurrencies by putting more pressure on governments to regulate the industry,” argues Shahrokhi.
Banks are concerned about the lack of regulation in the cryptocurrency sphere. This lack of control over the technology is part of cryptocurrencies decentralized promise. If they want to have a voice in this emerging technology they should really be joining the conversation.
These four areas are where Shahrokhi wants banks to focus, claiming they only have a small window of opportunity in which to act. They currently have the dominant competitive advantage and they should really be using it.
Would this move into traditional banking institutions defeat the whole objective of the decentralized banking system that cryptocurrency already fulfills, or is it a progression along traditional finance lines that is needed for mainstream adoption in this sphere? Let us know in the comments.
Images courtesy of LinkedIn, Shutterstock