PYMNTS Intelligence: How Credit Unions Can Meet Member Needs With Cryptocurrency Services

The pandemic forced financial institutions (FIs) of all kinds to undergo a digital transformation of their offerings. While most credit unions (CUs) are now meeting member demands for digital and mobile banking, consumers’ rapidly growing interest in the use of cryptocurrencies is encouraging CUs to rethink the ways in which they can satisfy member needs.

Cryptocurrencies have skyrocketed in popularity since they became available in 2008. PYMNTS’ research shows that the share of consumers who held crypto at some point during the year rose to 23% in 2021 from 16% in 2020. This percentage is even higher among CU members. A recent report from the Credit Union National Association (CUNA) found that 39% of CU members owned cryptocurrencies, compared with only 17% of nonmembers.

CUs thus find themselves having to decide how and when to offer services in a form of currency that is still very much in its infancy. Some 16% of CUs are planning to offer cryptocurrency investing or trading in 2023 or later, according to one report, and 11% anticipate offering cryptocurrency rewards during this time. Current offerings, however, are at a much lower level, with only 4% reporting plans to implement cryptocurrencies in 2022. Meanwhile, one-third of CUs said they have no plans to offer blockchain solutions. With so much member interest, one might wonder why more CUs are not rushing to offer cryptocurrency services, but valid concerns remain.

This month, PYMNTS takes a close look at how and why CUs are offering cryptocurrency services and some of the frictions preventing them from providing these services more widely for their members.

The Increasing Demand for Crypto Offerings

Younger generations of credit union members are interested in crypto, and as they come of age, organizations will have to figure out how to conform to their needs. More than one-third of millennials ages 25 to 44 have invested in or hold cryptocurrency, according to a 2021 report, followed by 27% of Generation Z. By comparison, only 11% of those ages 45 to 64 and 4% of those 65 and older indicated an interest.

Newer data from CUNA shows ownership is even higher among these generations, with 59% of those ages 18 to 34 owning crypto, compared with 47% of those ages 35 to 65 and just 3% of those over 65.

At the same time, CU members are seeking more innovation from their FIs. More than 60% of CU members and account holders at other FIs have expressed interest in more payment capabilities, according to PYMNTS research, and nearly one-quarter of CU members said they would take their business to another FI to find the innovative products and services they demand.

For CUs, however, the benefits of offering crypto services go beyond preventing members from joining the competition. Some 36% of CU members are interested in using cryptocurrencies, according to PSCU’s research, and 91% said they count on CUs for financial advice and guidance. This gives CUs the opportunity to provide members with both the portfolio diversification they demand and the education to ensure they use crypto cautiously.

Barriers to Widespread Adoption of Digital Assets Among CUs

Despite the increasing demand for cryptocurrencies, many CUs are cautious to jump into the crypto space, as many questions about its adoption remain unanswered. Some areas of concern are fraud and illicit payments. Cryptocurrencies do not enjoy the same level of customer protection as other transactions through banks and credit unions. Recent cases of fraudulent activity related to crypto may have prevented some CUs from taking a more active role, due to the higher risk associated with digital assets.

Volatility is another issue, as the price fluctuation of most cryptocurrencies can lead to severe losses for CU members. One notable example is the plunge in bitcoin and ether values that occurred in April 2022, eradicating nearly all gains following their fourfold increase from January to November 2021.

Another important factor preventing CUs from offering cryptocurrency services is the lack of a solid regulatory framework for these assets. In this regard, CUNA has supported the federal government’s efforts to build regulatory architecture that will protect consumers and CUs from the risks of digital currency.

As part of the regulatory efforts to bring legal certainty to digital assets, the United States government has been exploring the possibility of issuing a central bank digital currency (CBDC). The National Association of Federally-Insured Credit Unions (NAFCU), however, recently stated that the costs of developing a CBDC outweigh the current benefits of crypto. Instead, they urged government efforts to develop safer alternatives, as well as financial inclusion for the most underbanked populations. U.S. lawmakers have also been working on additional legislation to bring cryptocurrencies and stablecoins under the regulatory supervision of the Securities and Exchange Commission and the Commodity Futures Trading Commission.

Despite the inherent risks, crypto continues to grow in popularity. To gain and keep members’ business, CUs will need to evaluate innovative crypto opportunities — and play the role of educator and regulatory advocate — to help make those services safe and trustworthy.