FIs getting in on crypto: here’s how Idaho Central did it

As interest in cryptocurrency investment grows, financial institutions have been forced to play catch up. One in five Americans have invested in crypto, and only a negligible percentage among them have done so through their primary bank or credit union, opting instead to work with digital platforms like Robinhood and Coinbase, which dominate the market share in crypto trading. Financial institutions don’t like consumers moving money out of their accounts, so more and more of them are looking for crypto enablement and keeping that business in-house.

One example of a financial institution that has made the move to crypto is Idaho Central Credit Union. Partnering with cloud-based digital banking services provider Alkami Tech, Idaho Central deployed NYDIG’s bitcoin trading solution. That enables Idaho Central members to trade in bitcoin directly on its mobile application and online banking platform. With that, the credit union has become an early institutional adopter of crypto capabilities.

In this partnership, Alkami essentially takes care of the entire tech part of the operations, from the end user interface to back office workings. Through its interface, it connects Idaho Central to NYDIG's solutions, displaying real-time bitcoin prices and facilitating users to open orders, buy, sell, or hold cryptocurrencies. Additionally, Alkami’s network enables Idaho Central to settle funds with NYDIG on a daily basis.

Idaho Central’s role in this is primarily as a distributor.

At Tearsheet’s recent Bankchain Conference, Mark Willden, Idaho Central’s chief information officer, and Stephen Bohanon, co-founder at Alkami, discussed what shapes an FI’s motivation to get involved in the crypto business, what the service looks like for consumers, and their outlook for the future. 

What motivated Idaho Central’s move to crypto

In Idaho Central's case, Willden said the move to crypto wasn't really driven by strong demand from their members for a crypto investment service. “You know, a little bit – not a lot,” he said, when asked if members were talking about crypto to the credit union.

However, members not discussing it does not imply their disinterest in crypto, he said, arguing that there are many interested people that just aren't talking about it. When members do decide they want to get involved, they naturally look for ways to get into the space, and Idaho Central's primary driver was a desire to provide that avenue.

Idaho Central and Alkami gauged user interest by looking at the general industry and noticing a rising demand for crypto trading offerings, with companies like Robinhood, PayPal, and Venmo running sought-after programs for retail users. Idaho Central, an organization that likes to view itself as progressive, knew crypto trading was an area worth keeping an eye on. Alkami understood their client, and when NYDIG approached them with their offering, they knew what to do.

“NYDIG initially approached us, and when we saw their package and what they had done with the regulators and everything to get this stuff kind of moving through the pipe there, we just thought of Idaho Central,” Bohanon said.

Alkami understood that they had to convince Idaho Central that the move was worth it, and support it with data. One of the first things they did was to dive into users’ transaction histories and see how much money was moving outside of the institution into places like Coinbase and other crypto exchanges. Oftentimes, when consumers decide to invest in crypto, they don’t think of approaching their primary financial institution, assuming it would not have the capabilities. So, they just move their money out.

“Armed with that data, we were able to go and say, 'Look, whether they're talking to you about it or not, they're obviously interested in it. And they're already participating in it',” Bohanon said.

Launching the product, and members’ responses

Idaho Central decided it was best to launch the product in phases and gauge consumer response before investing heavily in it. In fact, they didn’t even market the product for a time after launching it.

Idaho Central’s bitcoin trading offering is designed to be simple and straightforward. After a member clicks on the crypto widget, they are first presented with disclosures and FAQs. This educates them on crypto and helps them decide if it is something they want to invest in. Beyond that, the application is pretty basic. Users are not required to make a new account, as the service is fully integrated into Idaho Central’s application. So, within a minute of accessing the option, members are presented with real-time quotes and are ready to begin trading.

An active concern with launching a bitcoin investment tool for the credit union was how much time, effort, and money would go into servicing it. They wanted to know what it would mean for their call center traffic — would they have to invest in a bigger team?

Bohanon understands this as an industry-wide concern. In his experience, FIs have been reluctant to really push it hard, because they don’t know what kind of impact it would have on their back office.

“Keep in mind that, generally speaking, this is a Monday to Friday type of industry with very limited weekend hours, while the crypto market is a 24 by 7 by 365 industry. And so, there's a question of whether institutions will need to staff their call centers on Saturdays and Sundays, and those types of things,” he said.

In Idaho Central’s experience, however, it really did not significantly drive up the volume of calls they receive. The process of investing itself is not very complex – consumers usually figure that out on their own and don’t need much assistance. The primary calls that Idaho Central gets are about questions like why the credit union stepped into this technology. And that's easy to explain, Willden said, and really hasn't required a lot of support or much additional staffing.

Progressively making the service available for more users, Idaho Central wanted to measure the attractiveness and success of its product every step of the way, and the main metric they used for that was members' involvement. This would tell them whether their offering is user-friendly, and where the room for improvement may lie. “Being early adopters, we also wanted to make sure it was an enjoyable experience, that members weren't running into issues,” Willden said.

On a secondary basis, they obviously wanted to see how actively users adopted their solution.

For the first two weeks after the product was ready late last year, it was launched to some 20 users. As the firm received positive feedback and encouraging usage stats, they launched it to 100 users and tested that for another 2 weeks.

In December, they rolled it out to all 1600 employees of Idaho Central, and about 650 of them took advantage of it and started doing trades. That was pretty exciting for the firm.

After a month of running the product for its employees, the firm felt the time was right to launch to all its members, and it did. But even then, they felt a soft launch was the way to go. So, while the offer was deployed on its platform, they didn’t really invest a lot of money in marketing it. If members ran into the service themselves, they could use it, but the credit union made little effort to consciously move them there.

Within a short span of time, active users jumped from 650 to about 2500. It wasn’t until February that the firm felt ready to start marketing its product, and since then about 11,000 users have signed up and initiated trades through Idaho Central, with an average transaction amount of $100.

Benefits for an FI to get involved with crypto, and a look at profitability

While crypto prices have sagged, Idaho Central has seen pretty stable interest.

“There was this thought that as crypto has been going down, maybe interest will cool off. But I think what you see is people saying that, well, maybe Bitcoin prices were too high when it was at $50,000 or $60,000 for me to get into it. Now, at $30,000, I feel more comfortable getting into it,” Bohanon said.

Willden echoed this idea in the context of Idaho Central. 

“Anywhere between 17% and 22% of US adults actually own a share of Bitcoin. So when we translate that to Idaho Central members, that means about 100,000 of our members are doing something with it right now. There's a lot of intrigue, a lot of interest. And we think it'll just grow over time,” he said.

As things stand, most FIs that have ventured into the crypto space, including Idaho Central, are not looking to make profits from it — they don’t expect that to happen just yet. What they’re primarily setting out to achieve can be summed up as opening new revenue streams, demotivating consumers from moving their money out to new-age fintech platforms, and increasing customer stickiness on their own platform.

FIs want to limit the flow of funds out of customer accounts to fintechs – they want to keep the deposits to themselves because they tend to turn into loans and other products, which are their primary source of revenue. 

FIs believe offering crypto trading would give their members another reason to come to them. Profit is not the goal. So, while crypto does open another avenue for non-interest income, most of Alkami’s FI customers are just interested in being able to break even on the transaction fees, Bohanon revealed.

Willden supported this assertion, saying, “Our goal here isn't to earn a profit with cryptocurrency – we're actually hoping to break even with it. And so far, it actually looks pretty good that way.” 

What’s on the horizon for FI-enabled crypto trading

There are other consumer-facing products that banks and credit unions can use to help customers enter the space. Crypto rewards, for example, are seen as a great passive way to get new investors to enter. Less tech-savvy consumers, who are interested in the asset class but are nervous about the risks associated with crypto trading, have come to see crypto rewards as a beginning foothold.

While Alkami does not have enough data to support the claim, Bohanon does conceptually see rewards as an effective way for FIs to introduce crypto to their customers. To new entrants, the whole idea that their investment really doesn't come out of their day-to-day transactions is attractive. It's kind of all the gravy on the side that they’re able to use and leverage to buy crypto. 

Also, there is the concept of automatic deposits, where customers can set and forget recurring payments into their cryptocurrency portfolios. As a coin reaches a pre-set price point, the platform would automatically execute a buy or a sell action.

Bohanon believes automation will bring an uptick in the volume of crypto trading over time. “An active user logs into their banking application about five and a half times a week. So, there are a lot of times where the option to buy crypto is in front of them, as you can imagine, but they still have to kind of go and do it; it doesn't automatically run just yet,” he said.

“That's really what's coming next.”