Investment Banking | Fintech

Banks have real opportunities ahead in crypto, B2B, and omnichannel payments

Experts and innovators at RBC’s FinTech Conference 2021 were excited about future expansion in the banking industry. Crypto is growing up, digital transformation continues to pick up the pace, and there’s value down the line for banks with the right fintech partners.

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By Matt Thomas and Jason Gurandiano
Published July 6, 2021 | 3 min read
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In just over a year, the global pandemic has accelerated and compressed digital transformation cycles, forever changing consumer behaviors. Now, as banks and fintech emerge on the other side, there are new opportunities to grasp. Cryptocurrencies and blockchain solutions, long-mooted as one of the next best things, are finally beginning to mature. Omnichannel retail has expanded, and in the wake of changing retail consumer behavior, B2B payments may see a boost.

The maturing crypto market

For Visa’s Executive Vice President and Regional President of North America, Oliver Jenkyn, crypto comes in two flavors. First, there are cryptocurrencies and, second non-fungible tokens (NFTs), which function like assets. People are buying these with the hope that their value will appreciate, but they’re rarely an effective way to make transactional purchases.

The other side of crypto is stable digital currencies backed by existing fiat currency, such as the USDC. “The USDC is backed by the US dollar and, given the ubiquity and stability of the US dollar, there's a real opportunity there for that being a medium of exchange in global commerce,” he says.

Stephen Ehrlich, CEO of crypto trading app Voyager, is already seeing that in action. The app is seeing growth in USDC and consumers earning up to 10% interest.

“If you can earn 9% or 10% interest on USDC stable coin when your bank is paying out less than 1%, then you're certainly going to get people starting to come in,” he says. “I think over the next three to five years, as the infrastructure gets built up and as the market becomes more efficient, you're going to see mass adoption because financial services are going to change.”

New institutional interest

Crypto has been a retail story for some time now, but in the last five years or so, institutional adoption has also started to happen in a more material way. For example, Greg Schvey, CEO of Axoni, a capital markets technology firm that specializes in distributed ledger infrastructure, is seeing a lot more interest. Although the products that institutional investors are attracted to tend to be slightly different.

“We're seeing a lot of interest in things like exchange-traded derivatives futures, non-deliverable forwards, swaps, and vehicles like that. They don't require them to manage the custody and a lot of the other infrastructure that is required for touching spot crypto,” he says.

“There are going to be increasingly, I think, a lot of strategic opportunities in this space as maturity happens and product-market fit starts to be realized.”

That there are investors out there interested in the space is proved by comments from Joel Leonoff, CEO and Chairman of the SPAC JOFF FinTech Acquisition Corp.

“I'm very high on crypto,” he told the conference. “I've spent the last three or four months talking to probably 50 or so different crypto-related companies or blockchain businesses. It is becoming more and more relevant, very, very quickly, specifically the stable coins that are out there, facilitating cross-border payments.”

Digital transformation picks up (even more) pace

The pandemic was a huge accelerator for digital transformation, boosting not only the technologies underpinning banking but also a shift in consumer behavior. As a result, banks that haven't already need to start building an ecosystem of solutions and services for customers can be agile and adapt to market and consumer changes.

“If I'm a community bank in Boulder, Colorado, and I want to grow, what are my real opportunities for growth?” asks Jeffery Kendall, Chairman, and CEO of banking-as-a-service firm Nymbus.

“Well, if I can create, through a digital bank, an opportunity to start serving customers in California, or customers in Florida, that'd be a great opportunity. But I'm not going to do it under the traditional approach of being Boulder Community Bank. I need to create a new brand new strategy to distribute and go to market.”

Debbie Cunningham, Executive Vice President of Strategic Growth for SaaS firm Zafin, says that originally banks came to work with their platform because they found it hard to innovate on legacy core systems. In addition, they wanted to be able to compete with fintech startups and become more agile. But now, the market is evolving.

“Now we see our clients wanting to do more to be able to compete in this environment, and they're coming up with really interesting ideas. As a result, we see a lot of the banks starting to think about what more they could do beyond fee-based or lending-based services,” she says.

“I think we're going to see much more of a wholesale mentality for banks, figuring out a way to do unique partnerships and get their products out in different ways. Looking at different vehicles and different channels that they hadn't ever previously considered so that they can be competitive and take a position in the market.”

The next steps in the evolution of banking

This evolving digital transformation will take banking is still in question, but experts at the conference had some ideas. Visa's Jenkyn has long been working on getting a revolution in B2B payments off the ground and believes that this nut will crack in the next ten years.

“The B2B opportunity is huge. The idea that the current way that it operates is inefficient and someone is going to fix it – I absolutely believe that and I think there's huge value for the person that cracks it, but it is hard. People have legacy ways of doing this business,” he says.

“Figuring out how it works that way and why it works that way, the inertia of some of the models that are out there, it's going to take a while. But that is going to get solved in the next 10 years.”

Jenkyn also sees opportunities in how payment facilitators support the ideas that retailers are developing around omnichannel experiences. For example, buying online and picking up in-store is becoming increasingly popular, but then there's a question of how fraud is monitored through that transaction and how the online and physical are tied together to ensure that returns are processed appropriately. As omnichannel proliferates, add-on services that recognize new realities will help differentiate payment providers.

In terms of underlying technologies, Zafin’s Cunningham believes that artificial intelligence has still not seen its day.

“I think we've seen the first wave of artificial intelligence, and a lot of those companies really struggled because they had trouble collecting the data. The banks were ready, but consumers weren't ready to give access to their data, or it was complicated to get access to data or combine all data,” she says.

“Now there is a whole other resurgence of that type of FinTech. So for me, the answer would be it's far from over. We’re just getting started in terms of FinTech, and there's a lot of whitespaces."

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