Interest in cryptocurrency, particularly bitcoin, is accelerating as consumers grow more comfortable investing with digital assets. Financial institutions already are adapting to that changing landscape, exploring how to provide access to cryptocurrency for consumers.
That proactive approach is at the heart of a recent partnership between Fiserv and New York Digital Investment Group (NYDIG), a leading bitcoin technology and financial services company. The partnership will allow consumers to manage bitcoin transactions directly within their financial institutions' online and mobile banking portals.
Patrick Sells, head of bank solutions for NYDIG, and Byron Vielehr, chief digital and data officer for Fiserv, recently discussed the suite of bitcoin products and services, how it can help financial institutions retain and grow their customer base, and opportunities to expand from the initial bitcoin platform.
The following conversation has been edited for length and clarity.
What type of demand is there for financial institutions to offer bitcoin?
Patrick Sells: At the consumer level, there's this strong, untapped demand to access bitcoin at the bank – your trusted gateway and safekeeper of your financial assets. You want to be able to take advantage of that by buying bitcoin there and managing it in a single experience.
About one out of five Americans today own bitcoin, but the vast majority, about 80 percent, would rather custody it at their bank. That's an awesome target market to go after and a great business opportunity.
But what I get really excited about is that among the 78 percent of those who don't own bitcoin, the majority, 51 percent, would if they could. In other words, it's not a bitcoin issue for most Americans; it's an access issue.
Byron Vielehr: Among the more than 100 NYDIG and Fiserv clients we've talked to, interest is very high. We've had dozens raise their hands and say, 'We'd love to participate in this.'
I think they're attracted to it for very pragmatic reasons. They're trying to attract a younger cohort. They see dollars moving from fiat currency into bitcoin. They can see the demand, and they can see dollars leaving their institutions. They want to make sure they have the product their customers are looking for, and our job is to make that really easy.
We're focused on design and making sure we do all the hard work upfront to make it easy for our clients and their consumers.
– Byron Vielehr, Chief Digital and Data Officer, Fiserv
What is Fiserv doing to make this work?
Byron Vielehr: We're making the underlying connection between the account processing system at the financial institution and the custodial system at NYDIG so their systems can talk to each other through APIs. We're also doing the digital work to make it seamless from a consumer perspective so they can easily look at their accounts and move, for example, $100 over to the NYDIG platform.
It all happens automatically between the two platforms. Consumers can get a consolidated view of their holdings.
As we look out in the market, we think one of the big obstacles to adoption of bitcoin is a lot of the experience is not frictionless. We're focused on design and making sure we do all the hard work upfront to make it easy for our clients and their consumers.
What will this cost for financial institutions?
Patrick Sells: What's so exciting about this bitcoin platform is it's a moneymaker. The best way to think about it is it works as a software-as-a-service model, where you pay a flat fee per user who is active on the platform. But financial institutions can determine the transaction fee, and that comes in the form of noninterest income.
The more the customers use it, the more money the bank makes.
When we model and forecast different assumptions, the bitcoin platform generates income or, at worst, breaks even. It can be a new source of noninterest income that banks can use to reinvest in the bank and in how they serve their customers.
Byron Vielehr: Bitcoin helps them think about how they create revenue with something consumers really want.
The platform also will help financial institutions attract new depositors and retain assets. It will help with their acquisition efforts.
When you sit down and look at the full economic case, this is an attractive thing to implement.
Bitcoin is uniquely powerful, and the world has never had a financial asset like this.
– Patrick Sells, Head of Bank Solutions, New York Digital Investment Group
What are the top motivators for financial institutions to adopt this?
Byron Vielehr: There are two major motivators. One, they're trying to make sure they retain consumers on their platforms and retain them at the bank. They don't want to see dollars come off the balance sheet and go to a third party.
The second reason is that most current bitcoin holders in the U.S. would rather hold their bitcoin at a bank. Financial institutions hope to put signs out front that say, 'Buy your bitcoin here' and attract a new cohort that says, 'This is a known entity. There's a safety factor around it. I don't have to worry about having assets sitting with a perhaps unreliable third party.'
Patrick Sells: Bitcoin is uniquely powerful, and the world has never had a financial asset like this. Thinking about all the ways in which we can make a better, more inclusive, cheaper, faster financial ecosystem gets financial institutions excited.
Byron Vielehr: Our clients think the world of payments and assets is going to be different in the future, so they're starting to dip their toes into areas they see demand for now.
When we talk with senior bank executives around where the world of cross-border payments or disbursements is going, they recognize that the world is going to change quickly. At some point, they have to start to get involved and start to gain experience.
This is a great way to get experience in a proven use case.
Our clients think the world of payments and assets is going to be different in the future, so they're starting to dip their toes into areas they see demand for now.
– Byron Vielehr
What can we expect in the future?
Byron Vielehr: We see some use cases around rewards that feel like they're fast followers. It's quite interesting to consumers to be able to get rewards in bitcoin.
There are also use cases around lending. As people start to develop more bitcoin assets, financial institutions can lend against it.
Those types of use cases are certainly on the horizon.
Would you support other cryptocurrencies, such as dogecoin?
Patrick Sells: From a regulatory standpoint, there's a lot of comfort and clarity with bitcoin, which is why it's only bitcoin today.
If the regulatory clarity were to change with other assets, that could open possibilities. But philosophically, NYDIG sees bitcoin as different than all the other digital assets, including the role it can play as a financial tool.
Byron Vielehr: It feels like bitcoin is maybe in the second inning, and everything else is in the first inning. There's plenty in the news right now around compliance and some of the other cryptocurrencies.
But if the world evolves in a way that there's high demand for something else, we will look at it. We think about it from our clients' perspective and their consumers' perspective.
We're early in this, and we're all working our way through it. We see things that are proven in the marketplace, and bitcoin certainly feels more proven than some of the other cryptocurrencies. But the world will change, and month by month, we'll figure out what the right path forward is.