Members of small credit unions are buying crypto, too, says Becky Reed, CEO at $140 million asset Lone Star Credit Union in Dallas. “I challenge credit unions to look at their data. I think you’ll find 25% to 40% are buying crypto.”
Reed believes smaller credit unions are seeking a simpler solution. Toward this end, Reed partnered with fintech BankSocial for an alternative model that Lone Star debuted in early August.
The LoneStar/BankSocial offering is link-based rather than integrated into digital banking, streamlining the implementation process.
The member experience is credit union-branded and wallet-based rather than custodial.
In other words, the member continues to hold the private keys to their crypto, not BankSocial. “Most credit unions want no part of being a custodian at this point,” Reed says.
The partners plan to offer their solution to other credit unions, perhaps through a credit union service organization.
With $740 million in assets, Oklahoma’s Credit Union in Oklahoma City was one of the few credit unions with less than $1 billion in assets to provide crypto services upon its April launch.
“One of our strategic initiatives is to be a fast follower in digital so we remain relevant to our members,” explains Chief Experience Officer Jennifer Lown. “We were able to see from simple queries that our members were active in crypto.
“We’re big believers that the digital space is the great equalizer” for smaller institutions, she continues, aiming to prove that “small credit unions can participate if they engage with the right partners. We’ve been vocal with partners about our desire to be early adopters and beta testers.”
The credit union learned of the crypto opportunity through Q2, its digital banking provider.
“Eighteen months ago we began thinking about how we could help our financial institution customers get started in offering crypto investments,” says Johnny Ola, managing director of Q2’s Solutions Studio, the innovation hub through which ecosystem players integrate their functionality into Q2’s digital banking platform.
“At this point, consumers would rather deal with crypto through their financial institution through a secure portal they already trust,” he adds.
Credit unions confirm the rollout process takes six to eight weeks, “not a traditional heavy implementation lift,” as Ola puts it.
A busy road ahead
Other providers are entering the fray as well.
CryptoFi has completed some digital banking integrations, and also offers support for roughly 50 popular digital coins beyond bitcoin. Unifimoney goes a step further, enabling additional digital assets as well.
The “crypto winter” that has sliced the aggregate value of digital coins from nearly $3 trillion to less than $1 trillion doesn’t appear to have slowed the rollout of financial institution offerings, which several experts estimate will number in the hundreds in a year’s time.
The early adopters clearly see this as a long-term play, and are undeterred by a six-month price fluctuation. Bear in mind, bitcoin’s price had already dropped by half once before since their crypto initiatives began.
“We’re definitely moving forward,” Schroeder affirms. “Our interest is with the underlying technology of digital assets, not just crypto. We believe that’s where the operational efficiencies are.”
A recent NCUA letter clarifying credit unions’ authority to pursue distributed ledger technologies provides added comfort in that regard.
“We didn’t move into this opportunity for near-term revenue, although we put a little into our business case,” Schroeder says. “We did this because we knew our members had interest in it and because we want to be innovative and relevant to our members who are interested.”
Howe also sees further mainstreaming on the horizon.
“Once we’re able to start paying share dividends and loyalty rewards in bitcoin,” he says, “members will approach it like another share account.”
DePaul University finance professor Lamont Black freely admits his students got him interested in cryptocurrency.
“I was skeptical at first, having come out of traditional monetary policy,” says Black, a Federal Reserve Board economist for eight years before entering academia. “But the more I learned, I found the ideas behind it very interesting.”
Black has established himself as a popular speaker at credit union conferences and executive sessions, perhaps because of his even-handed approach to the topic.
“Bitcoin is a speculative investment, sort of like tech stocks. Anything innovative will be more volatile,” he says. “The recent decline is an important reminder that asset prices can go up and down—and crypto is no different. Late 2017 was another such episode. Credit unions will want to be prepared for these cycles going forward, educating members so they understand the opportunities and risks.”
Although Black counsels leaders to explore the opportunities presented by cryptocurrency, “that doesn’t mean you have to jump in with both feet. It’s a journey, and credit unions need to start that journey and build along the way.”
He also subscribes to the somewhat paradoxical theory that increased regulation will actually enhance the investment outlook.
“Crypto’s origins were as an unregulated form of finance,” Black explains. “As it engages with traditional finance, those points of intersection are where we’re going to see more regulation. This is no longer the Wild West. When the presidential executive order came out in March, prices went up. People are looking for more transparency and consistency. Credit unions should take encouragement from this.”
Although he owns digital assets as a long-term investment, “I’m not a traditional crypto investor focused on daily prices,” Black says. In fact, he doesn’t seem to be rooting for a quick recovery to the lofty prices of late 2021.
“Hopefully if prices stabilize some of the fear of missing out will go away and we can approach the space in a more rational, sustainable way.”
Credit Union Magazine’s Spring 2023 issue features the 2023 Credit Union Heroes and examines CUNA-League advocacy priorities, board leadership, the impact of financial well-being efforts, fee-related compliance issues, predictions for the year ahead, and more.
