Cryptocurrencies slowly have been entering the mainstream global financial ecosystem in recent years. They previously were considered to be poorly understood, nascent payment tools, but they quickly are finding favor as digital assets with diverse applications. Businesses, financial institutions (FIs) and FinTechs alike are eyeing cryptocurrencies’ potential benefits as a rising number of companies and consumers tap virtual currencies for their payments and financial needs. A PYMNTS report from July found that two-thirds of individuals who have held cryptocurrencies bought them intending to make transactions, indicating that their use as a payment method is poised to become more commonplace.
Consumers’ growing comfort with digital assets also is prompting more businesses to adopt them, with estimates from 2020 indicating that more than 2,300 companies in the U.S. accept Bitcoin as a payment method, for example. This surging commercial and consumer interest in cryptocurrencies suggests that the FIs that were early adopters of digital asset technology are well-placed to foster more loyalty for clients and customers.
However, supporting smooth and speedy cryptocurrency payments experiences still can be challenging. This is especially evident when it comes to cross-border payments, which are notoriously complex and friction-laden — even when fiat currencies are used. Changing regulations, the availability of key digital infrastructure and trust all can hamper cryptocurrencies’ adoption. As a result, international firms that wish to make cross-border B2B payments via cryptocurrencies could face significant hurdles, meaning banks must carefully examine trends surrounding virtual currencies worldwide. Eliminating friction points is key to the growth and adoption of cryptocurrencies on a global scale.
Moving Cryptocurrencies Onto the Global Stage
Banks and companies alike must become more comfortable with the use of cryptocurrencies to create space for them within the global payments ecosystem. Recent events have spotlighted cryptocurrencies’ potential, but many businesses in markets worldwide still are wary of leveraging them for their B2B payment needs, especially in the cross-border space. Concerns regarding cryptocurrencies’ volatility could be one major factor holding companies back, illustrating that FIs worldwide must educate their business clients about how such issues could be mitigated.
Banks wishing to earn crypto-minded companies’ loyalty also must keep pace with shifting financial regulations. This is particularly important when building out support for these payments overseas, as businesses must ensure their cross-border payments comply with all applicable standards. Regulations surrounding the operation of cryptocurrency exchanges and how digital assets can be sent or received are changing in multiple markets, such as India and the U.S. This can create frictions both for businesses eyeing crypto and for new financial entrants looking to support these payments.
Recent research also points to a potential surge in interest among FIs looking to nudge their way into the global cryptocurrency space. Overall support for virtual currencies among legacy FIs, in particular, remains low, with only 10% of such banks enabling access to at least one form of cryptocurrency. Nevertheless, 75% of FIs plan to expand their support for virtual currencies over the next 12 months, showing that they are preparing for an anticipated surge in usage. This also indicates that competition among FIs angling to underpin businesses’ cryptocurrency payments will be fierce, and figuring out which virtual currencies to support and how to do so smoothly will be critical. FIs thus could do well to partner with FinTechs that are equipped with the tools necessary to support smooth digital asset payments.
Taking a Collaborative Approach
Teaming up with FinTechs that have created the necessary infrastructure to support cryptocurrency payments is one way FIs could gain an advantage over competitors. This type of collaborative strategy also can help FIs appeal to a broader segment of businesses across multiple markets, as being able to connect to different data systems and services will give businesses greater choice and flexibility when making payments.
Banks must continue to keep a careful eye on how businesses and consumers are interacting with cryptocurrencies to determine how best to position themselves as dominant forces in the space. Consumers and companies are likely to become increasingly comfortable utilizing digital assets for payments, which means developing seamless, swift cryptocurrency transaction methods will be key for FIs.
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