Fintechs team up to bring crypto to credit unions

The banking software vendor Finastra and the digital asset marketplace Bakkt look to make crypto more approachable for credit unions and community banks.

Credit unions have expressed eagerness to offer crypto trading and related services to members, but are held back by outdated technology and unclear regulations. The National Credit Union Administration is continuing to gather feedback on digital assets to determine its regulatory stance; meanwhile, tech vendors are working to lower the barrier to entry for smaller institutions.

Using Finastra’s digital banking solution Fusion Digital Banking as the basis, the Alpharetta, Georgia-based Bakkt will integrate its own app and grant consumers the ability to buy, sell and hold various digital assets like Bitcoin.

“A number of our financial institution customers were coming to us and asking ‘Hey, we love what you do for us today, but what are you going to do for us tomorrow?’ and crypto has become an important part of that story,” said Philip Taliaferro, head of partnerships and fintech ecosystem at Finastra, which is based in London.

Workers Credit Union in Littleton, Massachusetts, which has $2.2 billion of assets, recently partnered with Finastra to upgrade its core technology and offer new services to members. Although it has not committed to offering crypto, it no longer considers its technology to be a hurdle.

“We’re certainly exploring [cryptocurrency] but we’re wary of two glitches. The first is what’s going to happen on the regulatory side of things, and the second is the volatility of the currencies,” said Doug Petersen, CEO of Workers. “When we’re able to address both of those concerns, and if our members demand it, we would certainly want to branch into that area.”

While credit unions wait for the necessary technology and a green light from regulators, banks and fintech are moving ahead with their own crypto offerings.

Organizations like the San Francisco-based payment company Square and the $12.3 billion-asset Silvergate Bank in La Jolla, California, have seen significant growth stemming from consumer use of various digital currencies.

In the second quarter of 2021, Square’s Cash App platform generated approximately $3.3 billion in revenue. Roughly 82% of that total was from Bitcoin sales.

Silvergate Bank, a subsidiary of Silvergate Capital, launched the Silvergate Exchange Network in 2013 to offer investors the ability to buy and sell crypto assets by facilitating transactions between the investor and the crypto exchange. In the second quarter of 2021, the network saw $240 billion in dollar transfers, which is a 968% increase from a year earlier.

As consumer awareness of cryptocurrency grows, many have either decided to purchase digital assets of their own or are considering it in the near future.

After witnessing the successes seen by Square and other organizations, credit unions and community banks have been eager to enter the cryptocurrency market themselves but are unsure of how best to start.

“Not only have the banks and credit unions been asking about the cryptocurrency industry and service offerings, but the providers of said services that work with them are asking as well,” said Talie Baker, a strategic advisor at the Boston-based research and advisory firm Aite- Novarica Group.

Baker’s response to these inquiries is focused not on digital assets or on services needed to engage with them, but rather “why would they be thinking of having a crypto offering when most don't have a faster payments offering yet in place for members,” she said.

The time, money and manpower necessary to restructure core technology can prove to be a hurdle for credit unions no matter the asset size. Partnerships with fintechs can not only yield savings in all of the aforementioned resources, but can also serve as a bridge for future innovations that members might want to engage in.

“Offerings that allow consumers to buy and sell crypto, will bring younger generations interested in these services into the credit union and keep them engaged with the institution,” Baker said.