Crypto and the Credit Union Innovation Playbook

A growing number of consumers are interested in cryptocurrencies, and most know what they are.

But the number of financial institutions ready to offer cryptocurrency services to their members or customers is shrinking.

“The wild fluctuations in value that used to make [crypto] exciting have flattened out. But that has made it more attractive and more like holding something steady, like gold, as an alternative investment,” Lou Grilli, senior innovation strategist at PSCU, tells PYMNTS.

And according to the latest PYMNTS Intelligence in the October “Credit Union Tracker®,” a collaboration with PSCU, 3 out of 10 consumers surveyed hold crypto, while the number of credit union (CU) members holding crypto has grown by 2%.

“Clearly, interest has not died off,” Grilli said. “There are still crypto day traders trying to time the market, trying to chase that elusive profit. And in countries where inflation is rampant and the currency is being devalued, locals want to hold their money in something that’s denominated in the U.S. dollar.”

Credit union members expect their institutions to provide services that offer trust, convenience and a frictionless experience.

These behavioral expectations have helped position embracing cryptocurrencies as a crucial strategy for credit unions looking to stay competitive and provide innovative services to their members.

Credit Unions Have Unique Advantages

In 2021, federal regulators gave CUs the green light to partner with cryptocurrency providers, paving the way for their entry to this dynamic market.

“Credit unions who have chosen to offer crypto services did so primarily to offer a safer alternative for their members, safer than having the members go off to Coinbase or FTX … by going through a credit union, your money is simply safer,” Grilli said.

And while that’s one benefit for the members, credit unions themselves can enjoy benefits by offering crypto services and products.

“There are ancillary opportunities here beyond just making money on transactions. Let’s say a member gets in a little over their head, like they’re $300 in arrears on an auto loan, but the member has $1,000 in crypto purchased through their credit union. The credit union could attach onto that $300 of [the] member’s holdings until the member catches up,” Grilli said. “And worst case, it’s a lot easier to liquidate that crypto than to try to find the car.”

Credit unions also enjoy regulatory support when it comes to offering crypto, particularly when contrasted with the tack   taken by traditional financial institutions including large banks.

That’s because the National Credit Union Administration (NCUA) encourages credit unions to embrace innovation and offers regulatory support for their cryptocurrency initiatives, Grilli said.

“You have a regulator who’s encouraging credit unions to be innovative, to try new things, not necessarily to take unnecessary risks. The bottom line is a crypto service offered by a credit union is safer than the alternatives,” he said.

Education Underpins Success With Innovation

Credit unions can successfully compete with larger banks in the cryptocurrency market. Size does not necessarily determine the effectiveness of cryptocurrency offerings, and the regulatory support provided by the NCUA empowers credit unions to explore innovative financial services.

Still, credit unions must take proactive measures to educate their members about the risks and rewards associated with cryptocurrencies. It’s essential to provide ongoing education and updated information through various channels.

Grilli explains that member-facing staff play a crucial role in educating members around recognizing and preventing cryptocurrency-related scams, helping protect them from potential fraud.

“Scams are on the rise,” he said, “and credit unions need to provide ongoing education that is updated with the latest news. Member-facing staff is one of the most important channels when it comes to providing members with the education they need to stay safe and take advantage of crypto responsibly.”

Credit unions can leverage their close relationships with members to fulfill these expectations around safety and education, and must also conduct thorough due diligence when partnering with cryptocurrency service providers, ensuring they have contingency plans in place to protect members in case of partner failure, Grilli said.

So, what does the innovation leader see the future holding for credit unions?

The short answer is, a promising future in the cryptocurrency space where credit unions can leverage cryptocurrencies for efficient and cost-effective money movement, making cross-border payments more accessible for their members, he said.

Longer term, Grilli said that blockchain and smart contracts offer numerous opportunities for credit unions to enhance their services, from digitizing property titles to managing digital identities.

“Our goal is to help credit unions be ready when these new technologies happen, so that the credit union can remain relevant and remain competitive,” he said.

By educating members, enhancing security measures and leveraging blockchain technology, credit unions can shape a bright future in the cryptocurrency space while safeguarding their members’ financial interests.