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Despite the brutal past several weeks that cryptocurrencies have experienced -- more than $1 trillion in value has been erased from portfolios -- an unexpected segment of the market seems to be optimistic about the future of blockchain-based funds.
American Banker issued its most recent batch of predictions for 2022 and its survey of 175 top banking executives from regional and global financial institutions had some surprising results. Before we look at the research details, It's worth noting that American Banker magazine is highly regarded as a credible source of content relating to banking regulation, technology, and innovation.
Crypto banking and wealth management trends for this year
According to the survey readout, blockchain and cryptocurrencies were major points of focus within investing circles and received a significant amount of media attention in 2021. Rightly so when you consider the hundreds of millions of dollars that flooded into the non-fungible tokens (NFTs) and decentralized finance (DeFi) sectors last year.
Given those massive inflows, banks cannot afford to ignore cryptocurrencies nor their client requests to offer crypto services. Here are the key findings from the survey:
- 44% of banking execs expect to offer some form of crypto support to clients by the end of this year.
- That is more than twice the number who offered those services in 2021.
- 60% of surveyed wealth management advisors expect that their clients will increase crypto holdings or start investing in those digital assets in 2022.
- A third of wealth managers expect to actively manage their client's crypto portfolio, up from 13% who currently provide that service.
Payments and transfers will matter more to consumers in 2022
Interestingly, the research found that banking executives believe that how consumers transfer their money and the various payment options at their disposal will be a key focus this year as well. It's no secret to anyone that banks aggressively compete to keep their customers and gain more of their "wallet share" by providing different types of services.
Those services include auto bill payments, direct deposits, low-cost fund transfers, and bank-branded debit or credit cards. Not only can crypto projects do all of those services automatically, and cheaper than banks right now, blockchain-based funds transfers have settlements that occur in seconds, not days. Additionally, there are several credit cards that provide crypto rewards as a percentage of the card balance in the user's preferred cryptocurrency. Banks that adopt just a few of those offerings will clearly differentiate themselves from competitors -- and the survey results show that banks are scrounging for competitive advantages.
Specifically regarding bank-branded credit cards, only 40% of banks expect to increase their investment in traditional credit cards with loyalty and rewards features within the next three years. The researchers suggest that may be a reflection of other competitive threats to credit cards, such as digital payment alternatives like PayPal and Venmo and initiatives by the Federal Reserve.
Interestingly, 25% of the surveyed lending executives named the Fed as a competitive threat to their consumer banking operations. The report specifically named "FedNow"-- the Fed's real-time payment service, which is an alternative to traditional bank wires or automated clearing house (ACH) transfers, as well as the potential creation of a central bank digital currency by the Fed. The Fed is the primary lender to banks and regulates commercial finance operations -- it's unusual to see it portrayed as a direct competitor to banks.
While no one can predict the future of any financial activities, the fact that global banks and lending institutions are seriously considering expanding their cryptocurrency and blockchain options this year can't be ignored. Adoption of digital currencies by large financial interests would create a bright future for cryptos. It doesn't take a crystal ball to see that.
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