Not long ago, traditional banks made a mistake. Due to inertness and conservatism, the world’s largest financial organizations have missed out on the rapid growth of FinTech. Banks had to implement new solutions post-factum and in a rush, which cost them a share of the market which was taken over by young and daring FinTech companies. And now banks are at risk of making the same mistake again; this time – concerning cryptocurrencies.
While conservative banks take a wait-and-see approach and confine themselves to launching bitcoin derivatives, companies like SEBA or Wirex are creating full-fledged ecosystems that combine fiat and crypto currencies. These companies were the first to build a bridge between the traditional financial system and the blockchain, and other organizations should follow their lead to avoid repeating the same mistake.
So far, neither market growth nor active attempts by financial regulators to create a normative framework have managed to convince banks of the credibility of the cryptocurrency industry. The banks’ doubts can be understood – the reputation of cryptocurrencies is still quite ambiguous. However, there are several objective reasons why banks should take cryptocurrencies seriously.
The COVID-19 pandemic and the lockdown have made cryptocurrencies more in-demand
During the lockdown period, it was not as easy for people to use banking services as it used to be: some banks couldn’t handle the load, mobile apps glitched, etc. Amid this, cryptocurrencies, with their low fees and high processing speed that has been significantly optimized over the past ten years, looked quite attractive. Moreover, in recent years, many currency markets, exchange offices, and other services have appeared, which allow for convenient and secure cryptocurrency operations.
On the other hand, many investors have turned their attention to cryptocurrencies as a protective asset. Fearing new rounds of quantitative easing that would devalue the US currency, institutional investors needed an alternative to the dollar and gold as a safe-haven asset, and they got it. As a result, cryptocurrencies began to occupy an increasing share of investment portfolios.
Cryptocurrencies are seizing developing markets
The success of cryptocurrencies in emerging markets is primarily driven by the high volatility of national currencies and weak banking infrastructure. Cryptocurrencies have become especially popular in Mexico, India, and most African countries. The younger generations in these countries are actively mastering new technologies, and operations with cryptocurrencies are becoming the easiest way for them to transfer money. Banks that are planning to expand into emerging markets should take into account the fact that cryptocurrencies already occupy a certain niche there.
Cryptocurrencies are a chance for challengers to gain a foothold in the financial market
Ten to twenty years ago, small companies had almost no chance of getting into a financial industry that was tightly controlled by regulators and occupied by giant companies. Nowadays, dozens of FinTech startups, cryptocurrency banks, and exchanges offering new services appear every year. Many of them flourish in the marketplace and gradually draw customers away from traditional banks. Large tech companies are also seizing this opportunity – for example, Libra by Facebook.
Brain drain into the crypto industry
Ten years ago, high-qualified IT specialists were actively hunted by Google, Amazon, Apple, and other giants of Silicon Valley, but since 2018, we can observe the growing interest of developers in blockchain projects. If this trend is ignored, banks are in danger of being left without high-quality engineers: blockchain startups are willing to pay good money too, and their projects are far more interesting than fiddling with legacy.