Digital banking is evolving amid growing investor interest in cryptocurrency. Consumers and commercial entities continue to demand offerings and services for digital assets, and the pandemic has accelerated this push.
This rise of digital assets will have far-reaching implications for the entire banking sector for years to come. It’s crucial for executive teams at traditional banks to understand how best to capitalize on these changes, where the risks lie, and how to prepare for the future of banking. For banks weighing how and when to start offering digital asset services, here are four key things leadership teams should do:
- Prepare to stake a claim. The evolution of money toward digital assets is affecting bank and fintech organizations globally. Companies should proactively think through adjustments now that will enable them to keep up with this rapid pace of change. At the start of this century, when mobile banking apps first began appearing and banks started offering remote deposit captures for checks, organizations that were slow to adopt these technologies wound up left behind. Banks need to make considerations now in anticipation of disruptions from digital assets in the future.
- Assess technology investments. A crucial determinant in how successful a bank will be in deploying digital asset-related services is how well equipped and properly aligned its technology platforms, vendors, policies, and procedures are. One of the primary concerns for traditional banks will be assessing their existing core banking platform; many leading vendors do not have blockchain and digital asset capabilities available at this time. This type of readiness is key if bank management hopes to avoid significant technology debt into the next decade. Additionally, banks will need to assess whether it makes sense to partner, buy or build the necessary technology components to transact, take custody of, settle and potentially issue digital assets.
- Prepare for growing demand. As digital assets become more mainstream, institutional adoption will increase amid rising consumer demand, especially from millennial and Generation Z customers. The rapid growth of digital assets just in the last year only emphasizes that the adoption of such assets will be the next phase of evolution for banks. That also involves added responsibilities and regulatory compliance that executives need to start understanding now.
- Mind the regulator. The era of digital assets is new, and as such, there is heightened scrutiny around related services and offerings. Executives will need to assess existing “know your customer” compliance obligations and update accordingly. Banks also need to understand the necessary capital expenditures related to deploying digital asset services. Regulators will be especially interested in not just what’s under the hood, but how banks are managing these new parts.
Banks that are contemplating or already in the process of deploying digital asset services will need to understand the regulatory requirements in this space and make upgrades to their core banking platforms to make sure those systems can interface with blockchain and other distributed web (sometimes called Web 3.0) technologies.