We do not have many opportunities to speak about crypto, so I hope this will somehow reach you. It is time to have a meaningful conversation about both our worlds. I hope we can leave aside hostile arguments and unfounded beliefs and start a real conversation.
My message to you is simple: We need each other to build a brighter future. Crypto is not going to bury banks. On the other hand, banks are not going to be able to sustain their longtime approach to finance without adopting a new and radically innovative approach.
What is broken
The industry of finance and, in particular, that of remittances and money markets requires a digital-first approach. Pay close attention to your customers’ demographics. The latest generations live on their mobile screen and want everything here and now. Millions of people, including in the U.S., do not have access to modern banking services. In Latin America and Africa the trend is even more extreme.
In an era where electronic money can be sent at the speed of light, your customers are suffering unfair fees, delays and sub-par web services. This has led to the birth of an entire sub-industry of neo-banks (many of which are embracing crypto) that are more attractive to a younger generation in search of natural digital experiences.
As expectations for banking services change, so, too, do the fundamentals of your business model. This is not solely your fault. The rules of finance based on traditional monetary supply and fractional reserves, unchanged for decades, are reaching its limits. You pay the price for unchecked government power to print unlimited amounts of money, accumulating outstanding levels of debt. Someone certainly has to pay for it. Right?
Do not fear
It is natural to fear the new. The same happened 30 years ago when the internet arrived and traditional media and commerce companies laughed at the new toy, not thinking a network of machines could threaten their thriving business until it was too late.
There was a time, not so long ago, when running an internet connection in the U.S. was illegal. Until it was not. The internet has since become a pillar of modern existence. The reason is simple: It is better for the world because it is better for people.
Back to crypto. Let’s start with the most important part: Although it is new, owning and trading cryptocurrencies is not illegal. It is highly regulated and monitored by authorities.
Crypto may have begun as a heterodox experiment that indeed was used for all sorts of illicit purposes, but so much has changed. It is estimated that criminal use represents only 1% of all bitcoin transactions. But the same is true of any new technology and, as a reminder, fiat currencies and cash, in particular, are the prime choice for criminals.
We get it, you need more familiarity with your security and risk standards. As a banker, you need to observe a certain set of know your customer/anti-money laundering (KYC/AML) rules. But that has led you – certainly out of risk management and maybe fear – to abusively prevent entrepreneurs from opening a bank account, or block the proceeds of a trade when you find the MCC of the operator not to your liking.
But know this: The crypto industry also applies rules of compliance. It is virtually impossible today to trade cryptocurrencies without a set of strict verifications.
Cryptocurrencies are being adopted by the day, morphing into a new field of limitless financial products and services that serve millions of people. But the crypto industry cannot grow alone, separated from legacy financial institutions and pipes. We already see the limitations.
Embrace crypto, build the future
Here is my message to you: Embrace this industry. Work with its people. Get to know them, not fear them. Start privately buying bitcoin today, try a crypto wallet and open your eyes. If you feel adventurous, try some decentralized financial apps (dapps) and borrow crypto or even cash with some of your cryptocurrencies. Understand this world.
You even have a legitimate reason to do so. Regulators in Germany, Korea and now the U.S. are letting banks custody digital assets. The regulatory framework is there for you to get started. Hop on the train, because if you do not, others will.
Some banks are already crypto first (like Signature and Evolve) and newer ones are coming that will be built on blockchain technologies and serve customers in the crypto space. While financial services geared towards millennials, such as Cash App, embraced crypto and have seen staggering growth.
The crypto industry needs banks to help build better and smoother services. We need help building real on-ramps and off-ramps with the freedom to move your funds seamlessly for non-technical people – not just “artificial ownership” as some are doing. (Robinhood and Revolut, I am looking at you.) Let’s work together to build better compliance systems that are simpler and safer, and create the real asset insurance services that are so needed.
No one is asking you to change everything overnight. Just start somewhere, learn continuously, explore the rabbit hole, do some pilots. Start with more familiar territories like custodial exchanges and U.S. dollar-backed stablecoins, which are in high demand everywhere.
You will be surprised by the ecosystem that is growing by the minute, and its unique opportunities. Your customers (and shareholders) will be happy to see you at the forefront of an emerging enterprise.
If we are working together you could even make a substantial profit and re-build the foundation of your industry with lighter and more efficient rails. Lord knows that banks need to become more capital efficient. COVID-19 has made more evident what we already knew: Banks are spending and costing their customers too much. We also need money rails that are more efficient: ask those who were waiting for their stimulus checks.
If your bank does not yet have a team studying this space, you are likely not working for the right company. The time for bridges for both our worlds has come. It is time to be brave.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.