Is it the right time for banks to get onboard with digital currencies? 

By Gaia Lamperti

The acceptance network for web3 and cryptocurrency is widening, with a growing number of financial institutions joining the space. In early 2022 it was announced that crypto transaction volumes are growing faster than ever before, increasing 567% from 2020 to 2021. This demonstrates the increasing opportunity for banks that play a role in the crypto revolution

“It is time for banks to prepare to engage with web3 and crypto, or risk having to catch up later,” said Mishal Ruparel APAC GM at Banking Circle. “It may still seem like early days for virtual assets, but our research shows it is growing rapidly in popularity, and the next two to three years will be critical in the evolution.”

Banking Circle, an innovative tech-led payments bank for the new economy, has recently published a study on what banks need to do to prepare for the widespread adoption of digital assets.“The industry has been working hard to reduce risk by improving fraud and money laundering defences. And we believe that acceptance, transaction and settlement of crypto will grow fastest when banks are fully engaged,” Ruparel added.

The whitepaper, ‘As crypto evolves, how should banks approach CBDCs and stablecoins?’ reported that Central Banks around the world are developing digital versions of their national currencies, backed by government commitment, promising to bring many of the advantages of crypto, such as faster transactions, but with the reassurance of low volatility. Central bank digital currencies (CBDCs) are in development in the Eurozone, Canada, Sweden, China, Brazil, the US and UK.

Since 2015, traditional financial services institutions added three times as many crypto-focused jobs, according to recent data from LinkedIn. and among them appear names like Deutsche Bank, Wells Fargo, Citigroup, Barclays, Credit Suisse, UBS and Bank of America. The crypto boom on Wall street also coincided with a record $25 billion in funding for crypto and blockchain companies.

Whilst the landscape for digital and cryptocurrencies is improving, the Banking Circle research found there are still challenges that have the potential to stall the evolution. The high cost of transacting on the Ethereum network is one of the key considerations for banks looking to join the digital assets revolution, although costs should fall as new coding layers are introduced.

According to a BIS survey of central banks, 86% of them are actively researching the potential for CBDCs, 60% were experimenting with the technology and 14% were deploying pilot projects. “Working with third parties as part of their ongoing digitalisation strategy will help banks prepare for the coming age of digital currencies”, said Ruparel. “At Banking Circle, we are already developing payment acceptance, processing and settlement solutions tailored to enable banks to get involved in digital currency as part of wider acceptance and transaction settlement systems.”