One in five Americans have invested in cryptocurrency according to an NBC news poll, despite the digital asset’s wide price fluctuations and liquidity challenges.1 The rising interest in digital assets for both payment and investment purposes has credit unions looking to regulators to identify and standardize regulatory requirements that allow them to offer members access to digital products. This access is necessary to increase member engagement and enhance the value of the credit union-member relationship. The National Credit Union Administration (NCUA) gave federally-insured credit unions the green light to partner with third party digital asset providers to allow members to buy, sell and hold digital assets with the third-party outside the credit union. Several credit unions began exploring options to offer this option to members, including Visions Federal Credit Union, which launched its tool in June 2022 [see “Crypto Convenience: How Members Can Easily Invest,” The NAFCU Journal, September–October 2022]. “The term ‘digital assets’ refers to a range of assets that include cryptocurrency such as Bitcoin and stablecoins, both of which are tokenized assets that don’t rely on a central bank or thirdparty institution to validate their value,” said NAFCU’s Senior Counsel for Research and Policy Andrew Morris. “Regulators are grappling with the challenge of providing guidance to financial institutions and each regulatory body has a different perspective.” While there are options for credit unions to facilitate member engagement with digital assets, Morris does not foresee cryptocurrency attaining the same privileges or functionality as deposits in a federally-insured institution. “A scenario that involves credit unions holding digital assets as a recordable liability in a custodial capacity is unlikely to transpire until we have further statutory and regulatory guidance,” he said. “Credit unions, however, can act as a finder for members who are looking for a reputable third-party provider through which they can buy, sell and hold digital assets.” Although sending members—and their money—to a third-party provider does create a relationship between the member and another organization, the opportunity to brand tools and serve as the trusted source of information and referrals can increase engagement and position the credit union as an innovator. Many credit unions have sought to learn more about opportunities in the digital assets environment due to concerns about the outflow of savings to cryptocurrency exchanges and other digital asset providers. “Credit unions have to know their members and understand what they want,” said Morris. The need for digital asset tools will be different for each credit union based on size, sophistication and member base, he added. “Until we have clarity on the regulatory issues regarding custodial relationships and the treatment of digital assets as investments, credit unions cannot easily bring activities such as safekeeping and payments directly within their institution,” said Morris. “There is also the chance that digital asset legislation will classify certain cryptocurrencies as securities, which increases the challenge of directly offering the product to members.” Making Digital Access Convenient One component of digital assets is the digital wallet, which consumers are increasingly using due to convenience. Even if the credit union cannot be a direct custodian of cryptocurrency at this time, it is possible to engage members in discussions about different types of digital wallets, the pros and cons of each, and develop strategies that further build member loyalty. Integration of digital banking with digital assets is on everyone’s roadmap, but even with regulatory questions to be answered, there are steps credit unions can take now to build a foundation for the future, said Sundeep Kapur, president of Digital Credence. “Digitization enables convenient, faster movement of money, which consumers want,” he said. “Unfortunately, financial institutions often focus on tactics rather than strategy, but planning to compete with mobile phone apps and fintech apps requires credit unions to step back and think strategically about a digital wallet program.” When consumers wanted the ability to transfer money directly to another individual with funds from their checking accounts, institutions offered products like Zelle, which is expensive to the institution and rather than generating revenue, it was an expense, said Kapur. “You could partner with a fintech for a seamless member experience but if the fintech provider is not embedded into your digital wallet, you may end up losing the member to other services offered by the fintech.” “ Digitization enables convenient, faster movement of money, which consumers want. Unfortunately, financial institutions often focus on tactics rather than strategy, but planning to compete with mobile phone apps and fintech apps requires credit unions to step back and think strategically about a digital wallet program. ” SUNDEEP KAPUR, PRESIDENT, DIGITAL CREDENCE 19 THE NAFCU JOURNAL September–October 2023
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