Roadmap to Cryptocurrency and Blockchain for Credit Unions

Cryptocurrency may be a somewhat mysterious concept for many credit union leaders, but this won’t be the case for long. Research shows that credit union members are moving into the new asset class at a disproportionate rate compared to other U.S. consumers. Over 145 million Americans now own or have invested in crypto. And according to research from Fiserv, 61% of millennials and Gen Z want their bank or credit union to hold cryptocurrency. Earlier this year, Idaho Central became the first credit union to offer crypto services through a partnership with a CUSO.

Despite this, serious questions remain about the role of credit unions in the so-called “blockchain revolution.” To demystify the topic and help credit unions develop a roadmap to cryptocurrency, CU Benefits Alliance recently hosted a roundtable discussion on the topic of crypto and blockchain, as part of its “C-suite coffee break series.”

John Harris, CEO of CU Benefits Alliance CEO, opened the discussion by immediately addressing the elephant in the room — and the concern foremost on credit union leaders’ minds: “We know that millions of dollars are flowing out of your credit unions [into cryptocurrency]. . . . And it’s possible that these dollars may not come back.”

The roundtable discussion, attended by credit union executives from around the country, offered both a comprehensive overview of the disruption digital currencies are creating, as well as the steps credit union leaders need to take to help retain members and become leaders in this new space.   

View the full roundtable discussion, “Roadmap to Cryptocurrency and Blockchain for Credit Unions” here.

Harris was joined by digital currency experts Travis Hoban, CTO of Financial Technology Solutions International (FTSI) and a member of the Government Blockchain Association Banking and Finance Group, as well as Jon Ungerland II, CIO of DaLand.

In order to not only survive but become a trusted player in both cryptocurrency and the future of banking, Ungerland said that financial institutions need to be front and center of data-based transactions and processing at the heart of the crypto movement. Otherwise, more money (and members) will migrate out of the system, permanently. 

“We’re watching hundred-year-old centralized institutions falter and consumers and communities fundamentally lose trust in them,” Ungerland said. “This is the first new asset class in 30 years. What we have to do is understand that paradigm and start building products and services, and storing and processing the data that those communities and consumers think is valuable locally.”

The technological future of financial transactions

While cryptocurrencies and blockchain may sound like something out of science fiction, their core concept involves a philosophical rethink about the way that financial transactions will take place in the future. 

Blockchain democratizes financial transactions and puts control back in the hands of financial consumers, Ungerland explained. Blockchain technology allows electronic money to be processed and transferred among smaller, decentralized institutions and cooperatives, rather than large institutions. 

Hoban compared the current shift in digital currency to the way Napster and file sharing services disrupted and decentralized the music industry in the early 2000s, with new digital currencies offering consumers a way to invest and share their wealth outside of traditional financial systems.

Hoban explained that blockchain is the underlying system that allows cryptocurrency transactions to take place. And as the world migrates to the more immersive Web3 user experiences, with consumers conducting entirely virtual transactions in the metaverse, credit unions should be prepared to meet their members where they’re headed.

“Most research shows that consumers would prefer to do their crypto business with their primary financial institution,” Hoban said. “By not having a crypto strategy, you’re forcing your members to go somewhere else to find these products and services. You have this awesome opportunity as a trusted partner to be a good place for them to not only access the products and services, but information, education, and to be able to keep that member in house.”

Just as importantly, cryptocurrency management can attract new credit union members, as a majority of crypto users tend to be younger and in an underserved and unbanked population.  

Crypto regulations on the horizon

Credit unions also need to keep an eye on regulations related to cryptocurrencies, as a recent executive order from the Biden White House will likely result in rules governing the industry, by early next year. 

With more than 40% of central banks around the world in early, “proof of concept” stages with digital currencies, Hoban said the crypto industry has encouraged domestic legislation to help promote consumer confidence, which will be especially important after recent losses linked to the stock market downturn.  

“We know too much regulation is bad and stifles innovation,” said Hoban. “But with no regulation at all, we can’t foster innovation because nobody will want to touch crypto. There is a big push, surprisingly enough, from within the industry itself, for more regulation.”

Next steps for credit unions

Ungerland said credit union leaders can get ahead of the curve by working with experts in the cryptocurrency and blockchain field and helping to better educate themselves on the realities and potential financial rewards in the cryptocurrency space, rather than relying on vague information reported in the traditional media.

Hoban encouraged credit unions to follow the money and see first-hand the level of adoption cryptocurrency already has among their members

“Gather some information from your members,” advised Hoban. “I think you might be surprised with the millions of dollars in deposits that are leaving your financial institution. Go search your transactions in Robinhood, Gemini and Coinbase, and see what’s happening out there. It can be enlightening to realize . . . this money is leaving.”

The speakers also advised credit union leaders to become more involved in the legislative process governing cryptocurrency regulations. After all, credit unions serve a vital role in their local communities, and their voice needs to be heard.

This will require a long-term strategy, Ungerland emphasized to the credit union executives in attendance. But the time to begin is now.

View the full roundtable discussion, “Roadmap to Cryptocurrency and Blockchain for Credit Unions” here.

Planning and implementing a digital currency strategy will require new digital investment. CU Benefits Alliance specializes in helping credit unions restructure their expensive employee benefits plans to save substantial costs without compromising on quality — costs that can be redeployed for digital initiatives. To contact us for a consultation, please click here.