Bitcoin ATMs hit gas stations. Cryptocurrencies surge to a $2 trillion market capitalization. Celebrities rush into the nonfungible token market. Card networks launch crypto on and off-ramps, including crypto-reward cards.
With the deluge of crypto headlines, it is easy for financial institutions to get caught up in the fear of missing out (FOMO).
There are two steps to getting over crypto FOMO. First, one must answer the question: Is there a risk of missing out by not acting immediately? The short answer is no. Time, regulators and tech partners are on your side. The ability to harness crypto technology for financial institutions of any size is only getting easier.
Thanks to advancements by tech vendors, adding crypto services, such as bitcoin purchases and cross-border remittances riding on blockchain rails, is increasingly turnkey. Thanks to the potential crypto economy revenue pools, there is a vibrant competitive landscape.
Regulators are taking actions that are throttling back growth of the crypto economy in order to ensure consumer protection.
Second, address what could be missed by not acting at all? There is a twofold answer: one at the industry level and one at the financial institution level.
At an industry level, crypto technology is no longer immature. Bitcoin is nearly 13 years old, having launched in January 2009. The Cambrian period of use case testing is coming to an end and a Darwinian period of survival of the fittest is beginning.
In order to distinguish the most lucrative use cases, it is useful to apply the design thinking framework: prove value, feasibility and viability. Value equates to solving a problem and/or realizing an opportunity for customers.
Feasibility applies to the technical and regulatory realm. Viability translates into achieving scale and generating economics that are a sustainable win-win for provider and customer. Transaction banking and payments use cases stand out in proving value and feasibility, and now are making progress towards viability.
The use cases include trade finance, interbank payments, interbank messaging, cross-border transfers and cross-border payments.
While the crypto economy was born to deliver the elusive Internet of Value — digital payments and transfers — it is proving to have potential to deliver a more powerful value proposition of superior liquidity management across transaction partners.
Liquidity optimization is easier to tackle than payments, in part because there are fewer counterparties. Blockchain technology is enabling network participants to reduce the number of their external accounts, consolidate their liquidity and manage intraday credits.
Smart contracts — contracts whose terms are coded into a blockchain — are powering trustless exchanges, reducing liquidity requirements and lowering costs. Digital assets are improving foreign exchange liquidity in minor-to-major and minor-to-minor currency exchanges.
At the financial institution level, whether or not crypto technology represents an opportunity for game-changing competitive differentiation in transaction banking and payments is a function of the institution’s geographic footprint, revenue mix, growth ambitions and, ultimately, resources.
Currently, if an institution has any stake — current or future — in services that support cross-border services, it should assign, at minimum, an individual to determine value, feasibility and viability.
But getting over near-term crypto FOMO doesn’t mean it is safe to ignore the crypto space entirely. As long as there are unsustainable performance gaps between the digital economy and banking/payments, investment and progress in crypto technology and regulation will surge on.
You should have two lenses on the crypto economy: a short lens for use cases that matter to your business and a long lens on the horizon of decentralized finance and the broader Web 3.0 world.
For the short lens, turn on your news radar and monitor events. Ask your tech providers to keep you in touch with their crypto developments on a regular basis.
For the long lens, monitor Web 3.0 mainstream accessibility and acquaint yourself by participating in a metaverse and transacting in digital currencies with little risk.
Remember that 30 years ago, a tiny few believed that a network like the Internet could exist. Twenty years ago, few believed that a phone could turn into a do-nearly-everything device.
Today, the equivalent is a cryptophone, a mobile phone that acts as a gateway to Web 3.0 and the crypto economy, which would pave the way to mainstream access and improved functionality.
To conclude, when it comes to crypto, fear not and ignore not. At minimum, your business and your job have likely become more interesting thanks to crypto advances. At maximum, you could achieve game- changing competitive advantage if you pursue and realize use cases that make sense for your institution’s ambitions.
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