Why more fintechs and institutions should offer crypto products
- The largest companies and central government banks are either now invested in crypto or actively exploring crypto, making it an inevitable part of the global financial system.
- For financial services organizations and emerging fintechs looking to offer crypto capabilities to their own customers, these are some of the key considerations, benefits, hurdles, and solutions to keep in mind.
As of March 2021, the global market capitalization of cryptocurrency had reached $1.7 trillion, putting crypto’s mainstream status beyond doubt. The largest banks who have recently partnered with Paxos to launch crypto trading services, have benefitted from accelerated increases in top-line revenues, user engagement, and customer retention. Financial services firms that took an early leap of faith to enable crypto services in recent years benefited significantly as a result:
- Square brought in $3.51 billion in bitcoin revenue during Q1 2021, resulting in $75 million in gross profits during the same period.
- 17 percent of total Robinhood revenue also came from cryptocurrency transactions in Q1 of this year
- SoFi CEO Anthony Noto reported, “Feedback from our members has made it clear that a significant percentage are not only interested in learning more about cryptocurrencies but are also already buying and selling crypto.”
- Revolut’s CEO Nikolay Storonsky said, “We have been amazed by the incredible demand of our cryptocurrency feature.”
Companies expanding their financial service offerings to include crypto products and trading have much to gain.
Companies that integrated crypto capabilities into their product offering have unlocked new revenue streams, attracted new customer segments and increased user engagement and revenue per user among existing customers. In the first quarter of 2021, 9.5 million customers traded crypto on Robinhood Crypto, which is up 458 percent from 1.7 million in the previous quarter. Square tells a similar story, stating, “Bitcoin has helped increase engagement in our broader ecosystem, as bitcoin actives use other products, such as Cash Card and direct deposit, more frequently compared to the average Cash App customer.”
However, offering crypto products and trading requires navigating a complex regulatory landscape.
Companies offering crypto buying and selling to US customers must have at least a Money Transmitter License (MTL), which is issued on a state-by-state basis. Other regulatory licenses are also available -- like a Trust charter or BitLicense from the New York Department of Financial Services (NYDFS) -- but these designations are often more challenging, time intensive and expensive to secure. Alternatively, if a company does not have an MTL, BitLicense or NYDFS Trust charter, then it can also partner with a provider such as Paxos that has the proper licensing to offer crypto services to customers.
As the first regulated Trust company, Paxos also offers its partners solutions that leverage its custody services, turnkey APIs and trading on their own Digital Asset Exchange - allowing any financial services firm to offer buy, sell, hold, send, or receive crypto capabilities to their own customers.
When looking for a company to custody your customers’ crypto assets, the safest and most secure option is a regulated Trust company. A regulated Trust company such as Paxos (which uses a combination of cold and hot wallets) provides the highest standard for custody for three reasons.
- First, Trusts are qualified custodians and as such are legally obligated to safely hold cash, crypto, securities and commodities on behalf of customers.
- Second, customer assets custodied by Trust companies are bankruptcy remote, meaning they’re held independently of the company’s operations and protected from bankruptcy proceedings.
- Finally, since assets are held in FDIC-insured bank accounts or US government-guaranteed instruments, their value is guaranteed.
With Paxos Crypto Brokerage, powerful APIs enable any financial partner the ability to easily add crypto capabilities to their desktop, web or application platform. Paxos manages the complexity of building and maintaining these markets while its partners can manage the customer relationship and in-app experience. Trade execution can also be made much simpler with Paxos’ itBit Digital Asset Exchange, complete with best in class blockchain monitoring software and institutional grade systems designed to prevent market manipulation.
Want to learn more about how to go-to-market quickly with your own crypto offering? Click here to discover how Paxos can help you.