By Ray Birch
ST. PETERSBURG, Fla.—It’s time more credit unions begin looking at their members’ account activity to see if they are getting involved in cryptocurrency.
Lou Grilli, senior innovation strategist at PSCU, said many CU’s may be surprised at what they find.
“I encourage every credit union to look at ACH and debit card transactions to the (crypto) exchanges—I think it’s really eye-opening,” Grilli told CUToday.info. “The Super Bowl only heightened cryptocurrency awareness—the four commercials for crypto really moved crypto into the mainstream zeitgeist. One exchange, FTX, had Larry David in his ‘Don’t be Like Larry’ commercial. And everybody noticed the bouncing QR codes to encourage people to sign up for Coinbase.com, which ended up breaking the Internet.”
UNIFY Financial in Torrance, Calif., became one of the first CUs in the country to offer crypto services to its membership after first scanning its transaction data. The CU told CUToday.info that last year it began watching ACH and debit card activity and saw a large percentage of its membership playing in the crypto space.
This is the third in a three-part series in CUToday.info on cryptocurrency and what credit unions are doing.
Similarly, Visions Credit Union recently shared a similar experience with NAFCU’s Strategic Growth Conference.
The Questions
Grilli acknowledged the answer as to whether a CU should get involved in crypto will vary widely across credit unions.
“The NCUA recently offered guidance that basically stated that credit unions can get involved in third-party relationships to offer crypto-related services, with appropriate disclosures to members, letting them know these funds are not insured, and suddenly credit union interest has really ramped up,” Grilli said.
Grilli said when he speaks with credit unions regarding cryptocurrency, the typical questions are
- How do we do this?
- How do we know it’s the right thing for our members?
- How can we be sure that that the credit union is not putting them at inappropriate risk?
“However, members already are participating in crypto, participating in the risks,” he said. “As I noted, a few credit unions I’ve spoken to have started tracking share deposit outflows to the exchanges, members taking their money out of their credit union and moving it into Coinbase, crypto.com, FTX, Binance, eToro…”
Grilli advised CUs not to go into any crypto program with the notion that digital currency is primarily for younger members.
“One of our credit unions showed me a histogram of crypto purchases by their members broken out by age groups, and Baby Boomers had purchased twice the amount of crypto as Millennials,” he said.
The concerns CUs should have about not offering cryptocurrency services go beyond just losing relevancy with members, explained Grilli, saying playing in the crypto space could lead to a loss of members not only to other FIs offering crypto services, but actually losing pieces of the member relationships as the crypto-focused fintechs expand into financial services offerings.
Members Have Choices
“If the credit union is not going to offer the ability for a member to purchase crypto, the member has many other choices,” noted Grilli. “Venmo, PayPal, Cash App…have made it super simple, with big green ‘purchase crypto’ buttons in their apps. The crypto exchanges, like the ones that advertised during the Super Bowl, are not going to stop with just the ability for their customers to buy and sell crypto. They already have started offering banking-type services—savings products, loans. Now, when their customers—who may also be a credit union members—go looking for loans, they may choose a loan product from the exchange, using their crypto as collateral.”
The reason credit unions should care about crypto is because their members care about crypto, Grilli emphasized.
“And if the members are going to be moving their money elsewhere, the credit union may want to maintain that relationship as trusted financial advisor and partner to their,” Grilli said. “And that’s a key—the credit union can help members understand the risk of getting overextended, which is really easy to do given the hype and the fervor that crypto has generated. So, there’s certainly a need for credit unions to educate members, even if the credit union has no desire to offer crypto-related services directly.”
Lou Grilli
Why Consumers Prefer CUs
Several analysts have shared with CUToday.info studies show members would rather purchase cryptocurrency through a trusted source, like their CU. Grilli agreed.
“There’s a plethora of studies show that members would rather buy crypto through their credit union,” he said. “Why not be ready to offer your members that ability, but in a safer, more compliant, environment, potentially with lower fees?”
As a side benefit, by having the credit union see the crypto transactions flowing through their own mobile banking app, it can also see the balances members have.
“They can then take those balances into account as collateral for loans,” Grilli said. “Someone might have several thousand in bitcoin and now they want to buy a house. But they don’t want to sell the bitcoin, if for no other reason than they don’t want the potential tax liability. Some credit unions are taking those balances into account when calculating ability to repay, essentially using that bitcoin balance as collateral for a loan.”
Additional Busineess Cases
Grilli said there are other good business cases to be made for CUs offering crypto services.
“The credit unions that I’ve spoken to that have been offering buy-hold-sell crypto services, taking crypto balances into consideration for lending, offering cash-back rewards in the form of crypto, are strengthening that bond with their members rather than forcing them to go elsewhere,” Grill said. “But given the high interest in crypto by younger generations, it’s also helping to attract new, younger members to the credit unions.”
One credit union that started offering a crypto purchase service a few months ago has seen 10% of new account openings driven directly from new members wanting to purchase crypto, Grilli said.
“The demographic that wants to purchase crypto through their credit union are not day-traders, they are not sophisticated investors using crypto derivatives and buying stablecoins,” he said. “Those types are opening an account directly with the exchanges. However, there is a huge category of what’s referred to as ‘crypto curious’—they see the commercials, they hear the hype, they want to dabble, but do not feel comfortable scanning their driver’s license and submitting it to an exchange they’re not familiar with. They would throw some dollars in to bitcoin if their credit union made it easy for them to do so.”
Some Advice
If a credit union is considering offering crypto services, Grilli shared advice:
- Discuss at the board level. Is this something the board and senior leadership at the credit union believes is in the best interest of their members. “The answer varies among credit unions,” Grilli said.
- Make sure the chief compliance officer has a good understanding of the offering.
- Start tracking on a monthly basis member share deposit flows to the crypto exchanges over ACH and debit transactions.
- Deputize one or a few credit union staff who are interested in the topic to follow the news closely, since cryptocurrency is evolving so quickly. “They should get together once a week, send out a update with curated links to relevant topics, with maybe a sentence or two boiling down why this may be relevant for the credit union or the members,” Grilli said.
- “Finally, and most important, is member education. Regardless of whether the credit union is going to get involved in crypto directly or not, know that your members are. And there is far more interest than there is understanding when it comes to crypto,” Grilli said. “Make sure your members understand the risks, the many scams that pop up, how it works, what exchanges are, and even what cryptocurrency is.”
More in this series