LAS VEGAS–Gambling. Crypto. Sports betting. Pot. Regardless of where you or your credit union may stand on each of those, members are involved and are making related payments. So, how should a credit union respond?
By recognizing that the credit union may not have to go “all in,” but they do need to be in the game, according to a panel of four people who spoke to credit unions here as part of Mitchell Stankovic’s Underground Collision here.
Participating on the panel were:
- Amber Harsin, president/CEO, Prodigy (moderator)
- Todd Lane, president/CEO, CalCoast CU
- Michael Maxwell, board member, SCE FCU
- Robert Craig, president/CEO, Payawik
Here’s what the panel had to say:
Harsin: We are starting to see some money movement around what was once considered counter-culture, such as cannabis banking. The same thing with betting and crypto; all are coming into the mainstream. Do we continue to wait and see, or is it time to go all in?
Lane: (By show of hands, most in room told Lane they did not hold crypto). I’m going to make a case for why you need to be invested or have some exposure to crypto. I invested in a Bitcoin ETF. Your exposure ought to between 1%-5% of your entire investment portfolio.
I think credit unions should be playing a role in crypto. We see various credit unions doing various things. My credit union is not quite all in; we are providing education around the risks. With blockchain, our credit union thinks blockchain is transformative for our business and every other business in the world and we are watching it very closely. It’s actually moving slower than we thought it would move.
Crypto is primarily a young male’s game. In the 18-26 age group, 33% have invested in crypto worldwide. But it’s not mainstream yet.
When you hear about the risk of crypto and failures and regulatory intervention, rogue custodians, lost passwords, fat finger trades, and even plain old everyday scams, that’s what (we are thinking about) at our credit union.
My case for investing in crypto is based on what we used to hear about modern portfolio theory, which was invented in 1952. What it says is if you own a single investment, your risk is very high. If you owe two assets equally and both are positively correlated, you might as well just own one. If you have a second asset that is negatively correlated, you have reduced your risk. Now, think about adding a third asset to your portfolio, like crypto. It is the riskiest of all assets, but it actually reduces your overall risk. Data show that crypto is negative correlated to every other type of assets. You will increase your return.
What about the role of credit unions? As I said, we have lots of education. The reason we have not made the next step is we are concerned about the sustainability of the (third party) organizations. We are not sure how to measure and assess whether they have sustainability. NYDIG last week laid off a third of their employees. That concerns us.
We think we need to be there. You’ve seen the stats about money moving out of your credit union.
Maxwell: Crypto is here to stay, and so is sports betting. I have an investment in a sports betting app. I see a lot of similarities between sports betting and cannabis, with one difference--there is no federal law against sports betting. Thirty-six states have passed laws on sports betting. It’s here to stay. In 2019, there were one-trillion P2P payments related to sports betting. Your members are doing it. You can’t be the morality police about that, it’s every day.
But we also need to be protective of our members. My friend (who owns the sports betting app) recommended you at least open up your system to let the transactions go through. What is going to happen is they are going to move it into a crypto account, and then go to a sports betting app. My friend said fees are very high and these companies need help.
There are opportunities here for you to partner and to not be afraid of taking that money anymore.
Craig: We are being acquired by GreenCheck Verified, which provides software for cannabis.
How many of you are partnering with cannabis operations? (Not one hand was raised.) How many of you are taking cannabis deposits? You all are, you just don’t know it.
There are 30,000 institutions that have been licensed by the 38 states that have legalized cannabis. There are 500,000 potential members working in the cannabis industry. That is a market you can’t necessarily ignore, and then there are the family and household members. Cannabis is here to stay. Cannabis taxes are higher than cigarette taxes and alcohol taxes on beer and wine. It’s very hard to give up on those tax revenues, as we saw with gambling. This is definitely mainstream for your members and communities.
Participating in this is an opportunity for credit unions. Now, it’s about 50% bags of cash. But they are using all the normal things small businesses need for payments. I would encourage you to use the technology that is available to serve them. If you choose not to serve cannabis operators, embrace their employees and use an outsourcing resource to serve cannabis operators.
Question: With each of these instances, the ultimate money movement channel is becoming crypto and blockchain. That is starting to chip into the payments rails? What recommendations do you have to assess some of the technologies available to credit unions here? What risk mitigation platforms?
Maxwell: Just allow that transaction to happen. You can set limits. You can track it and serve up a message about financial literacy. If it’s going through the credit union rails you can see it and help them if they are doing something potentially detrimental.
Lane: One of our challenges has been our board. We have very conservative policies at our credit union, and for us we do a lot of education with our board as these things move into the mainstream.