Crypto Capabilities Bring Engagement, Revenue and New Users to Neobanks

By the end of the year, more than half of the 10 largest neobanks will be offering clients cryptocurrency products.

So said Mark Daly, vice president of growth at Zero Hash, a crypto infrastructure provider that offers a range of products including crypto trading and custody, staking, crypto rewards and non-fungible tokens (NFTs).

There are two main reasons for that, Daly said.

The first is that they are seeing strong evidence that clients want and will use them.

To begin with, a big driver of neobanks’ interest in offering customers crypto is that they can see just how many are currently sending funds from their accounts to cryptocurrency exchanges. Those are funds the neobanks want to keep on their own platforms.

Beyond that, providing crypto services is proving popular. Daly said that when neobanks and challenger banks launch these services they are seeing 20% to 30% of their clients immediately jump on board and start buying and selling crypto. That’s a big selling point for anyone on the fence about adding digital assets to their offerings.

Fighting off Poachers

The second reason for that interest, Daly told PYMNTS, is that neobanks are seeing cryptocurrency exchanges starting to show interest in offering more traditional financial services as they try to develop “super apps” that act as a single center of consumers’ financial lives.

Over the coming year, Daly predicted, there will be more and more “crypto exchanges directly competing against neobanks and challenger banks that are operating in this space,” Daly predicted. “That’s because they’re chasing after those high value products — credit cards, debit cards, lending and borrowing. They’ve reached for these high value products that traditional banks or neobanks would’ve offered in the past.”

A good example is leading U.S. crypto exchange Coinbase, which along with a crypto-spend debit card that offers as much as 4% crypto-back rewards has started offering services like direct deposit of paychecks, using the lure of allowing clients to have a portion of their deposits as cryptocurrency without charging a separate transaction fee.

See also: Crypto Firms Face Turf War With FinTechs, Neobanks Over Service Offerings

While those are good reasons to add the service, the complexity of offering crypto services can be daunting, Daly said. Zero Hash is seeing interest in its “crypto-in-a-box” services. This includes handling the buying and selling of the digital assets, building a reporting layer, and handling the compliance framework of an industry whose regulatory framework is still being built, he said.

“I think what we’ve seen over the past year is that crypto’s not going away,” he said. “The key thing that you’re doing is you’re enabling your users to interact with what we are seeing as the future of finance. You’re giving them an entry point into that market.”

Ultimately, Daly added, crypto has the potential to move from a sideline to a mainline revenue source.

Three Benefits

When neobanks and challenger banks do begin offering customers crypto products, they “typically see three key things: engagement, new revenue lines and new users,” Daly said.

On the engagement front, Daly said that the 20% to 30% of customers using crypto when newly offered is not a Zero Hash statistic, but industrywide.

Those numbers fit in well with the results of PYMNTS’ recent U.S. Crypto Consumers study, which found that 23% of U.S. consumers have bought or held cryptocurrency in the previous 12 months.

Read more: The Data Point: 23% of US Consumers Owned Cryptocurrency in 2021

Crypto users log in more and engage with neobanks’ platforms twice as much as non-crypto users, Daly said.

“In terms of new revenue lines, adding crypto to your product enables you to add a spread to those prices,” he said. Additionally, customers are interacting more with a neobanks’ application, means there are more opportunities to upsell them other non-crypto products.

The third reason — and certainly not the least important one— is that offering crypto services “opens up access to new users.”

Beyond the Basics

To really get the kind of interest from customers that they want, Daly said, neobanks and challenger banks are also finding that their crypto offerings have to offer more than trading tokens, Daly added.

“It won’t just be a simple bitcoin buy-and-sell product,” he said. “That’s not going to be enough. They’re going to be offering a gateway to like a Web 3.0, giving users access to DeFi, to NFTs, and doing so with a really simple and beautiful user interface.”

While the level of complexity will depend on the client and their customers, Daly said.

Zero Hash’s crypto-in-a-box can take complex decentralized finance (DeFi) products like staking — essentially loaning their cryptocurrency out for interest and rewards — and “offer users a very simple front-end interface where this is all done in a couple of clicks,” he added.

See also: What is Staking?

That’s important for another reason, Daly said, noting that studies have showed that far more non-millennials engage with crypto products then people think. For example, 45% of crypto cardholders are over 35 and 11% are in their 50s and 60s.

Crypto rewards like those offered by crypto spend cards or simply as a reward option in other loyalty programs have a very strong draw for non-millennials, he noted, adding that other parts, like DeFi and NFTs, are very millennial-focused.

“I think it’s interesting to see how different products have different demographics,” Daly said. “Not just crypto as a whole, but specific products within this market.”

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