A First Look: How Financial Intermediaries Can Integrate Crypto

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Most crypto owners would prefer to interact with digital assets through their banks and other traditional financial institutions. In the United States, as many as 65 million customers—most of whom do not own any digital assets today—are potential owners, and would use digital assets through their existing financial institution if available.

“Navigating Crypto: How Banks and Other Financial Intermediaries Can Integrate Crypto Assets”, a new report from Oliver Wyman commissioned by Ripple, examines how banks and other intermediaries are increasingly exploring offering digital assets to their customers and outlines the necessary requirements to do so. This involves accomodating a range of technical, commercial, organizational and regulatory factors to enable customers to interact with crypto, which must be done strategically in order for banks and FI’s to position themselves for success in the short and long terms. 

Nikolai Dienerowitz, Oliver Wyman Partner in London, said: “Financial institutions that develop capabilities to serve this market have an opportunity to differentiate themselves in the near term—and develop capabilities in the longer term that may position them well to broaden out their digital asset services. For example, a bank investing in technology to manage the nearly-instant settlement with digital assets today may be better placed in the future if they want to serve customers with CBDCs.”

A Deep Dive into the Current Crypto Landscape

Broken out into five distinct sections, the paper explores the evolution of the market and highlights its rapid growth over the last few years, extrapolating along its current growth trajectory. (If extrapolated, there could be as many as 1 billion global crypto asset owners by 2024.) 

While the authors acknowledge the future of crypto is still uncertain and hinges on three primary factors – regulatory oversight, new use cases and end-user demand – they say the potential to serve these customers and become the primary gateway between fiat and digital assets is real for banks and financial intermediaries. Those that do so have the opportunity to position themselves for success in a potential future in which digital assets are more prevalent. 

What Do I Need to Offer Crypto Services?

For banks seeking to capitalize on this opportunity, the paper outlines seven core technical requirements (e.g. liquidity solution, settlement network, etc.) and suggests a five-step checklist for how to begin this process, including goal setting, identifying key requirements, determining a development strategy, accounting for risk and regulation, and establishing a delivery strategy. 

Since many organizations lack the expertise and capabilities to build and manage these requirements in-house, the report highlights the benefits of a partnership strategy to help maximize speed to market and fully realize the customer opportunity. In support of that strategy, it also provides a high-level overview of the types of crypto partners available and how each fulfills specific strategic requirements. Arriving later this year, Ripple Liquidity Hub is one such solution that is purpose-built to solve many of the challenges financial intermediaries face that are outlined in the report.

“With a decade of experience in crypto, Ripple has a deep understanding of what it takes to build crypto-first products, with a track record of leveraging blockchain to serve financial institutions,” comments Brad Chase, Ripple’s Senior Director of Engineering. “In launching Liquidity Hub, we are packaging Ripple’s expertise and capabilities behind simple APIs, so these customers can easily offer crypto to their end-users without having to rebuild the entire tech stack.”

Eric Czervionke, Oliver Wyman Partner in New York, adds “Large banks with commensurate tech budgets typically have advantages in realizing economies of scale in investing in new technology capabilities. That may be less true in crypto where most banks will rely on partners to offer new services to their clients – so smaller banks may compete on relatively more equal footing.”

What’s Next For the Market and Financial Institutions

Ultimately, the paper predicts that those banks and financial providers that move quickly and decisively to meet demand can become vital members of the crypto market. Those that adopt a “wait and see” approach run the risk of being crowded out by competitors, including crypto-native firms that will continue to build better products, attain bank-level security and convenience features, and gain greater brand recognition and trust. 

Download Oliver Wyman’s Navigating Crypto report here to read more about the future of crypto and how financial organizations can get ahead.

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