It’s time for credit unions to make sure that they know how to talk to members about crypto, according to a major credit union service organization (CUSO).
This is why PSCU, which supports more than 1,900 financial institutions representing nearly 7 billion transactions annually, is rolling out a major initiative focusing both on educating credit union (CU) staff and helping them educate members in turn.
“Educating members on crypto is a key goal,” Lou Grilli, senior innovation strategist at PSCU, told PYMNTS. “This landscape is evolving so quickly. There’s more interest now than previously, despite this crypto winter that we are in.”
That doesn’t mean all CUs will offer crypto services, Grilli said, noting that’s a decision for each institution to make on its own. But there’s more to it than that, particularly for CUs.
“The relationship that credit unions have with their members is a bond that credit unions tend to capitalize on,” Grilli said. “And rightly so. Credit unions have seen some of their members being scammed by fake websites, falling for phishing scams, succumbing to false ads for a better way to buy bitcoin. And that’s where the need for education … really becomes paramount.”
Trust Comes First
But either way, the way to “maintain that level of trust that the credit unions have with their members, that the members have in their financial institution” is to provide sound and knowledgeable advice, he said.
So, he added, “It really is the optimal time for credit unions to educate themselves and their members on digital assets” — a broad term that Grilli said covers not just bitcoin, ether and other cryptocurrencies, but also stablecoins, central bank digital currencies, non-fungible tokens and even basic blockchain technology.
“This topic has its own language and this language is not native to people in the banking space,” he added. “It is equally important, maybe more important, that credit union staff be knowledgeable about the risks, the terminology and the various coins and different types of digital assets which have been in the news lately.”
To that end, PSCU and its innovation team have created a microsite, which covers everything from broad industry topics as they affect credit unions to regulatory updates. It also means being sure members know what they are potentially getting into and don’t invest more than they can afford to lose.
Opportunities
A small number of PSCU credit unions currently want to go all the way and offer the ability to buy and trade cryptocurrencies directly from within their apps or websites, but Grilli thinks that will grow as regulation provides clarity.
While benefits include keeping members away from scam sites and offering better fees, PSCU’s own debit card data shows that clients are still buying crypto, he said.
“We see the outflow … to the exchanges,” Grilli said. “And even though we’re in a crypto winter, it has not stopped. It has slowed somewhat — but it has not stopped.”
Beyond that, Grilli said that anecdotally, there are signs that small businesses are interested in accepting crypto at the point of sale. At least one CU that has been ahead of the curve in offering crypto education found that these members “wanted to know if their credit union could offer crypto acceptance at the point of sale,” he recalled.
Another interesting trend PSCU is beginning to see, Grilli said, is some “credit unions are beginning to ask about a member’s digital asset holdings in loan applications.”
That means that assets in bitcoin, ether, dogecoin and other cryptos can be considered alongside stocks and savings “when assessing members’ ability to repay a loan,” he said. That doesn’t mean they’re accepted as collateral, which isn’t allowed.
That inability to access credit from lenders broadly is something that has been a sore subject with crypto owners who don’t want to sell their holdings but do want to buy big-ticket items.
Very Rewarding
One popular crypto offering CUs are turning to is crypto rewards programs, like the one PSCU has been rolling out as an option in its credit card rewards program, Grilli said.
“It fits in well with other redemption options,” like gift cards, cash back and hotel and airline points.
“A lot of credit unions are looking to offer rewards, especially credit card cash back in the form of the member’s favorite crypto coin because, in this case, it’s more like found money,” he said. “It feels a little less risky … and members see it as a way to dip their toes in the water,” just to see what the crypto craze is all about.
More importantly, “it shows that the credit union is being progressive,” Grilli added. “They’re meeting the member where the member wants to be.”
Obstacles Remain
Still, there are three main obstacles Grilli sees to broader crypto adoption as a means of payment — most notably via crypto debit cards that allow users to spend their crypto in-person or online, while the merchant gets paid in cash.
First, he said, there is a lack of widespread merchant adoption.
Second, with most of the crypto owners who bought in 2021 or early 2022 underwater, people are less eager to spend their crypto at the bottom of the market, Grilli said.
Third, there is the issue of taxes, which remains one of the biggest obstacles to wider crypto adoption, particularly for its use in payments.
“Every time you redeem crypto, you are on the hook to report your gains or losses to the IRS” as a potential capital gain, he said. “Buying a cup of coffee each week with crypto implies a lot of reporting next April 15.”
Bringing Certainty
To an extent, what happens next depends heavily on the elected officials and regulators writing a regulatory framework for the crypto industry — which, by and large, doesn’t exist yet.
In the meantime, Grilli said federal banking regulators like the Office of the Comptroller of the Currency and the Federal Reserve are wary. However, the process has begun in earnest in Congress and will pick up steam when federal agencies make their recommendations due under President Biden’s executive order on crypto. That’s due as soon as this month.
Grilli has high hopes for that legislation, saying that if it can “offer safety, but without sacrificing innovation,” crypto, stablecoins and distributed ledger technology (DLT) — the foundation of blockchains — “offer so much tremendous potential for money movements.”
However, that innovation requires secure rails and reliable stablecoins, Grilli said.
So far, Grilli said, the National Credit Union Administration (NCUA), which is the regulatory body of federally insured credit unions, has been surprisingly progressive in this area.
In December, it issued the first of two advisory letters which said “digital asset services are absolutely not prohibited, as long as they provide full disclosure to their members,” though Grilli added that they can’t custody those assets for clients.
See also: NCUA Tells FICUs Crypto Trading is OK — If Big Exchanges Provide the Service
The second, he said, allows credit unions to work with providers of blockchain and DLT.
This isn’t to say they are encouraging on the matter, instead emphasizing due diligence and risk assessment while using language like “not prohibited.”
And either way, many credit unions will want to wait until the regulations are clear and the regulators more supportive. But there are still plenty of reasons to get ahead of the curve when it comes to educating staff and preparing to educate members.
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