Small banks are facing intense competition from their big rivals and to compete effectively and win they need a smart strategy. If they try to fight toe to toe with the giants, they will be overpowered and outspent. So, how do they prevail? They need to think like David.
Just like startups move faster than their big rivals to capture an opportunity and serve a market, we’ve seen the same thing happen with small banks and crypto adoption. Small banks saw an opportunity to establish a presence in the market and offer a service that the majority of larger banks shied away from.
Big banks may dominate the industry, but dozens of small and community banks have realized that Bitcoin could give them a winning edge. The crypto market offered an alternative for smaller banks to boost their deposits, by providing corporate accounts to companies like Coinbase, Binance, and Celcius, and making it easy for them to provide liquidity to their customers and allow for the fast purchase of digital assets.
Silvergate Capital, Signature Bank, Customers Bancorp, and LHV Pank snapped up billions of dollars in deposits from crypto businesses and grew with the market.
Also community banks are getting into crypto. Community banks are an important provider of credit to small businesses and an essential element for the development of local economies. Community banking is not only a phenomenon in developing countries. In 2019, there were 4,750 community banks, compared to only 427 non-community banks operating in the US.
Vast Bank, a community bank in Tulsa, Oklahoma, became the first nationally chartered, FDIC-insured bank to offer crypto banking, a product that allows customers to buy, sell and hold virtual currencies through the bank’s user interface. Two small California community banks, First Foundation Bank in Irvine and Suncrest Bank in Visalia, quietly built the capability for customers to buy, sell and hold bitcoin. Account holders can manage and monitor their crypto holdings alongside their checking, savings, and other traditional bank products.
But this year’s decline in cryptocurrency prices has put some of these smaller players on a rollercoaster ride and created a lot of skepticism about their course.
- In the second quarter, deposits at Silvergate fluctuated by $5 billion before ending at $13.5 billion.
- Signature posted a decline in deposits in the second quarter, for the second time in the last ten years, and Celsius Network one of its major clients filed for bankruptcy.
- As for LVH, the bank’s consolidated net loan portfolio increased by €172 million in a quarter, but consolidated deposits fell by €44 million and deposits associated with payment intermediaries fell by €94 million.
Now more than ever, people are making a lot of assumptions about cryptocurrency. During periods of intense market volatility, many investors assume that cryptocurrency is unsafe. Too risky. The technology is too new and unproven. Their value is not backed by anything solid. Bitcoin, LUNA — what’s the difference?
For centuries people have demonstrated enormous collective power to drive markets to scary heights and devastating drops. Just because a lot of people are investing in something does not make it a good investment. The same goes for panic selling — it does not always mean it’s a bad investment.
Why is it time to think strategically about cryptocurrency?
There is growing mainstream curiosity and interest in cryptocurrency, especially among millennials and Gen Z. According to consumer research, 61% of millennials and Gen Z want their bank or credit union to hold cryptocurrency.
While there are risks involved, there are also really big opportunities. When we look that the big picture, the rewards outweigh the risks. Despite the challenges many of these smaller banks face, they are still profitable. Big and small banks may want to begin thinking about strategic use cases for cryptocurrency as they wait for clarity from regulators, as they position themselves and take into account the Fed’s warning when it comes to cryptocurrencies — to make sure they’re legal.
The banking system is on the verge of radical changes. Banks will play a significant role in the crypto industry, but they need to shift from thinking of crypto being a competitor to that as a partner.
The future of small and big banks will be in being holders of trust for their customers. The ones that manage this transition will likely have a competitive advantage, otherwise, they will not be around for long.
by Ilias Louis Hatzis is the founder and CEO of Kryptonio wallet
Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research