Transcription:
Daniel Wolfe: (
Hello, everybody. We're ready to talk about crypto. Everybody come in and have a seat. I am Daniel Wolf at American banker. I am pleased to introduce Patty Wobbles, the senior vice president of client development and lead for the cryptocurrency advisory services at SRM (strategic resource management), an independent fair firm that advises financial institutions in executing business strategies and strategic sourcing initiatives. Wobbles has over 20 years of business development experience was 16 plus of those years in the banking industry. All right, everybody, let's hear it for Patty
Patti Wubbels: (
Have a good day. Okay. So there's not very many people in here. I actually have a Bitcoin that I will give someone if you move closer to me so I can actually see more than this person over here. Not kidding. It's a true offer. Here you go. Here's your Bitcoin
Patti Wubbels: (
.
Patti Wubbels: (
So we had to switch this up a little bit. It was supposed to be a panel, obviously talking about crypto strategy. We had Sahil Keswani from MBV that was supposed to be here. He couldn't make it. They had some thunderstorms and stuff in New York. And so we had to pivot a little bit. We were gonna cancel and then I just kind of threw it out to them to say, well, I've got this presentation that we do on a regular basis to help educate around crypto. So, I'm gonna run through this. I'm gonna fly through it, honestly. This is usually something we do in an hour to two hours with executive teams at banks and credit unions and board members. We actually did this for staff one day at learn at lunch.
Patti Wubbels: (
So I'm gonna fly through these and then if anyone wants to contact us afterwards, we'd be happy to present this a little bit slower and deeper for your team. So appreciate the few of you that are here, but it is educational only. Normally we focus on some terminology. A lot of people are at the same baseline where they're still learning about this. So we've got terminology, we've got statistics, we've got use cases. And like I said, I wanna stay true to what you all were here for and that was looking at some strategy around crypto. And so I'm gonna make sure this works here. Before I get too far though, I do wanna make sure the disclaimer, I am not a financial advisor. I'm not a tax advisor. I'm not a legal advisor. I have been learning a lot.
Patti Wubbels: (
I have a lot of opinions, but this is do your own research. What I often find, as you start to learn more about crypto, there's so many different use cases and something will connect and then you just dive into that rabbit hole. So as opposed to one rabbit hole, there's actually quite a few rabbit holes. As you can imagine, the industry changes very quickly, as we all know. I'll touch on a few things that have happened recently if I get a chance and, we'll go through that pretty quick. So that's my disclaimer. This is our crypto advisory team. We started learning this, so in terms of payments, this was something we started studying well over a year, year and a half ago because we knew that it was gonna have a potential impact to the payment space and specifically interchange.
Patti Wubbels: (
And so we did start self teaching ourselves, playing around with it. We were skeptical at first, like most people, we got involved, we started learning a little bit more about it, and then we started educating our clients on it and finding more and more about it. So now our team is four, Keith Ash is actually in the back with me. And so it's just been a great journey and we have a lot of clients that we're now helping go through the strategy which I'll talk about here in just a second. The most important part though, is thinking about how we still focus on the intersection between traditional finance and crypto or DEFI or Blockchain. We use those terms intermittently but it's not saying it should be one or the other. These are all terms of finding friction points, finding ways that we can pull this into the existing traditional banking system but make it a safer way, make it a faster way, make it a less expensive way.
Patti Wubbels: (
And those are all the different things that we're looking at in terms of looking at this space. So I'll spend a little bit of time, usually I say, this is my Oprah moment. This is what we have evolved as a strategy. So if nothing else, this might be a great slide. We have provided this deck for you, but if you wanna take a picture of this one, we'd love to work with you. However, if not, if nothing else, stepping, taking time. So the market right now, and it being where it is, it's a perfect time to just take a beat and stop for a second and go, where should we be right now? Because that's obviously a question, what should we be doing? Where should we be? And this is a perfect place to do that.
Patti Wubbels: (
So what we have found over the last year or so with our clients is, first taking a minute for needs assessment and finding out with your financial institution, what are customers or our members doing right now? They're probably not walking into the branches asking for crypto, but you can look at outflows and see what, and statistically we know probably about 30% of those customers are membersare already participating in the crypto ecosystem. Statistics also show for every billion in assets, there's likely a million going out to the outflows on a monthly basis. Now obviously that's gonna be down just a little bit right now given the entire market, not just the crypto market. You're probably seeing a little bit of an uptick in inflows, as people are moving to a little bit more of a cash position, but in terms of some baselines, even if it's low right now, this gives you an idea of what your consumers are doing with crypto.
Patti Wubbels: (
The caveat to it is that it only shows you if you're the source of funds. So you would want to explore if they have other source of funds, if they have a propensity to get into the crypto market, if you offered something. And that's why we talk a little bit about customer or member surveys. Also, somebody had mentioned earlier that it's hard to go out and find crypto experts that can come into your institution, but by having an employee survey, you might find out you've got some internal resources that you can work on as you start to build up your strategy and your needs assessment. Education, first and foremost, people, as I said before, learn more about crypto, they start to find their own unique use cases. This isn't just something that you're throwing on your online mobile banking app and saying, yep, we're doing crypto.
Patti Wubbels: (
And so it offers an opportunity to step through it. The competitive analysis, finding out what the rest of your market is, use cases, which I'll talk about today. We do have an SM crypto university that's open to anyone every other Thursday at four o'clock Eastern time. Sometimes we have the third party vendors that help financial institutions in this space, sometimes it's just an update on the market and again, you can contact us to be a part of that. So as you talk about needs assessment, the next part of that strategy is the crypto strategy. One thing we advise everyone on is to find out what those use cases are and then find the third party that helps you bring that to fruition, not the other way around, finding out what your institutional readiness is. What's your infrastructure again, just because your core or your processor or whomever you're working with online banking. Just because they may be already connected with a third party, doesn't mean you have to use that third party.
Patti Wubbels: (
You might wanna explore others and I'll show you a slide here that shows a few of those other vendors and so thinking through that process, a lot of the things we do is just facilitate the conversations as you have different areas within your institution to come up with those unique use cases. In terms of the partner selection, because this is such a new area, what does that RFP look like? What questions should we be asking? Some things that come to mind would be who is your liquidity provider? Do you have more than one? Do you offer insurance on the crypto if we offered it? So things like that, that we help with our institutions in flushing out all of those important areas. And then once you do, or at some point, if you do decide to roll something out now, obviously we're talking about this from a retail perspective.
Patti Wubbels: (
There's also use cases from back office efficiencies, blockchain and smart contract, which would've been very interesting to hear. What Sahil had to say at MVB in West Virginia, they're not doing any retail strategy right now. They're doing all back office efficiency, so I would love to have heard more of what, how they were approaching that. But when you do get ready to roll out your retail product, what does that look like? How do you wanna do it? Do you start with your employees? Do you go to a wait list? What types of implementation integration do we need to think about pricing decisions really important in the contract aspect of it is finding out there is institution as you're, as you're looking at that contract. Not having to participate in that income rev share, what they offer there's negotiation in there.
Patti Wubbels: (
And I say that because there's a couple institutions that have been on some of these panels and they didn't realize they could actually be earning income, which they just didn't know that they could ask for it. So those are important parts of that and then regulatory disclosures, regulatory preparation. So you'll see this at the very end. Hopefully as I fly through here pretty quickly, again, this is a strategy. So if you were here to find out what you should be doing in terms of strategy, this would be the slide. That would give you that information. When I do these presentations, we find giving some perspective on why an institution should be looking at this. We've got statistics that we like to put up here. Again, I won't read them all, but just knowing that again, estimated 20 to 30% of Americans do own some sort of cryptocurrency
Patti Wubbels: (
That's why we come up with probably 30% of your consumers are already doing it. 61% of voters believe the US government should support the crypto industry. We're also in a election year. So we'll hear more of that as people are trying to get elected. 50% of financial advisor clients are asking about crypto. I was talking to somebody earlier and no one's saying put all of your money in crypto. I'm not a financial advisor. This is just my opinion, but as we are challenged right now in all our different areas of diversifying our portfolio, we we're questioned with, do we want all of our money sitting in our checking account? Do I go buy real estate? Do I put money in the stocks right now? Or is it crypto?
Patti Wubbels: (
And so you're seeing more and more of your customers thinking that way and adding a little bit here and a little bit there and that's where we're seeing that in terms of diversification. If you're going after the millennials, one in four millennials now use crypto to help their retirement goals, you'll start to see that not only there, but in terms of growing wealth and digital wealth, digital assets, people are gonna start listing, if they have 50,000 in crypto, they're gonna be listing that as an asset. How does your financial institution recognize that? You might see it on loans as people are applying for loans. And we'll talk about that in the use cases, big turning point for crypto was last year in the infrastructure bill. There was a couple sentences that tried to get snuck in there and they had more calls to Congress regarding the crypto in the verbiage that was in there.
Patti Wubbels: (
Then they had even through Obamacare and some of the other high political areas, so it's definitely a hot topic. Crypto owners want their primary financial institution to join that ecosystem. So goes back to the relationship that the financial institution has with that customer or with that member. They would prefer to work with their financial institution and may potentially go somewhere else. If somebody down the street did offer that type of product. The last one on here, just the number of citizens holding crypto has surpassed the number of citizens, and this is US holding bank, holding savings accounts, so again, just some interesting points. We talked through those, we changed those up a little bit, just to give perspective to why an institution or why the board members should be understanding why an institution is looking at this.
Patti Wubbels: (
I'm gonna go through these. This isn't crypto 101. So I'm gonna keep this on track for strategy. We do talk about crypto. We tend to lump this all into a category and so talking about just the basics of exchange of peer to peer, I can send you money, you can send me money. It's very different than what we're doing in our traditional banking, where yes, I have a mobile banking app. I even have PayPal and I can send somebody else money. The friction point is the settlement time, or maybe I don't have a bank account. And so when we talk about crypto and the early stages of it, why it came along, this is an education baseline that we go through. This one, I actually spend quite a bit of time on because there is such a difference between the digital assets.
Patti Wubbels: (
Bitcoin is very very different than all 80,000 other alt coins and the first two categories, there are obviously volatile. The reason they're volatile is because they are such a small asset class, down to 1.3 trillion right now it was 3 trillion. And when you think about what happened last week with Tarot? You had a whale who took a significant amount of money or significant amount of cryptocurrency out of that ecosystem. It made a wave it's like throwing a pebble into a pond as opposed to that pebble into an ocean. And so when you think about volatility, it's felt more in that space in those first two areas but it's the evolutionary process of that as it does become more mainstream as it does become a larger asset class, it won't be quite as volatile and obviously we're seeing that in some of the other markets as well, .
Patti Wubbels: (
Stable coins, I did mention Tarot a little bit. Stable coins are typically, and this is where education comes into it. A stable coin is pegged to something USDC, USDP are a one for one us dollar. The Tarot was not a one for one, it was also part of the Luna token and as I mentioned, bunch of people or a whale took out their position. They had to liquidate a lot of their Bitcoin and that's what threw it all into a frenzy. However, it was actually really good. It was a not non-significant token, but at the same time, it made everybody perk up and say, okay, this is why we need regulations in the stable point market. Maybe people wouldn't have put so much money into tariff if they knew that that could potentially happen.
Patti Wubbels: (
And so that's why it's a good thing and we'll call for regulations. What's interesting about the crypto market too, 41 or 42% of the people who own crypto have purchased it in just the last year. So they've not experienced the downturn, like in 2018, there was a downturn. That was deeper than the one that we're feeling now. And so as more people have experimented and got into crypto, they haven't felt this ebbs and flows yet. And so again, it kind of spooks people and there's a whole philosophical conversation around all of that, but it is very exciting. Not NFTs, NIFTYS, non-fungible tokens seem very pop culture. We pay $3 million for a picture of an ape and not a lot of us know why anyone would do that. However, the application there is definitely the proof of ownership.
Patti Wubbels: (
So if you think about from a house standpoint, the friction point and I'm in the process of that right now, so I know the friction point is the title company, I have to pay a fee, I have to wait for that title to come back, and with an NFT, I would be able to instantly prove that I own that property or the other person would be able to prove that they own that property. It could be a vehicle. There actually was the first house purchased through cryptocurrency in Kentucky. I believe it was last week and it took a total of seven seconds to execute that transaction. So, there is some very exciting things happening with the NFTs and again, on your lending side there might be the opportunity to facilitate from a customer standpoint, a quicker transaction in the loan process.
Patti Wubbels: (
Every time you think about those traditional friction points and traditional banking, crypto blockchain, DEFI is all trying to figure out a way, is there a better way to do this than the legacy and legacy on top of legacy that we continue to evolve with CBDCs. We could spend a whole hour on CBDCs. Again, it is a philosophical conversation. It's also being, as it was talked about before, there are 80 countries, our country, MIT and the Boston fed are looking at it. It offers utility and the fact that if you think about the pandemic, the US could have executed that the stimulus fund, the first time, very quickly out to citizens through a mobile wallet, they could have put a time limit. So they actually used that money to stimulate the economy, which is what it was for. Instead as we know now, people socked it away, understandably, but it didn't stimulate the economy.
Patti Wubbels: (
And then we had two and three more rounds of it. And so, it can be a good advocate for tax leakage. The other flip side of a CBDC is that I don't know if anyone wants the government paying attention to what exactly I'm buying with that cryptocurrency that they sent it to me. So what we are seeing is more application of the CBDC in the institution environment. Not so much in the retail side will likely see more of the stable coin, especially as we get some regulations around stable coins from a retail aspect, but the point here again is they are all very different. All those alt coins, Ethereum is obviously a popular one, but you hear about doge and the 80,000 other ones you can read about them just like you would a stock and find out what's behind it before you invest in it.
Patti Wubbels: (
And it all comes down to that education, but not lumping them all into one category. Okay, different use cases, so sometimes our institutions will ask why are our customers or our members even interested in crypto? If it can be a store of value, it can be a speculative. If they're interested in a buy, sell, hold. They're use a lot of your younger members or younger customers are participating in Robin hood at an increasing rate just as well. And then from a transactional standpoint, so we talked about international remittance, payments, of course, real time settlement and that's where we're seeing a lot of the use cases for crypto, all different perspectives, all different use cases. And that's why your institution can identify what is in our wheelhouse and what are we comfortable with? I've added a couple things as I've heard more institutions, especially from a banking side, interested in the ecosystem, the blockchain and understanding what the blockchain is.
Patti Wubbels: (
And it's really a, it's a giant global spreadsheet instead of you having your spreadsheet and I have my spreadsheet and hopefully they sync up, this is an open transparent spreadsheet. So that information, that transaction goes into that block, that block every five to 10 minutes is gonna add another block that references back to the first block. And so it creates that security and that information that cannot be altered or changed and so the applications to the blockchain are increasing. I think that at some point, you know, we talk about our core providers. People have looked into cloud core. I wonder if at one point there'll be a blockchain core that will be a service to financial institutions. Obviously we heard about consortiums, there are financial institutions, associations that speak to this and finding out how this can be a good source for those friction points that are in the financial institutions.
Patti Wubbels: (
What's important about this and two, is that you don't have a single point of failure. So the way we have it now, if the server goes down, the server goes down at your bank. When you have a distributed ledger, it's nodes all over the world, hundreds of computers all over the world, constantly, cross-referencing each other. If one of those nodes goes down, the rest of the system continues. If one of those nodes gets hacked, the rest of the system can recognize that and keep that out of the loop. And that's why there's so much opportunity there. So a lot there. This is just a diagram of how a blockchain would work smart contracts, which again, I think will become more and more apparent as a use case in a financial institution. If you think about an escrow account, and as soon as something happens, money is released.
Patti Wubbels: (
That can be automatically set up through smart contract. That's less people, less intermediaries, less chance for somebody to make an error. And so from a friction standpoint, there'll be a lot more use cases that come out with smart contracts. And again, another really exciting area. More statistics. This was a visa survey. How many people were aware of cryptocurrency? As we mentioned before, 94%, we saw it in the super bowl. We see it in a lot of college sports ads. That's where I'm paying attention. I'm sure it's in other places where I see billboards everywhere. And so more and more people are aware of cryptocurrency. They may not be ready. There is a barrier of entry. Its, they don't know Coinbase, they don't know those areas very well, but they do know their financial institution.
Patti Wubbels: (
And so there could be an opportunity for them there and then at the very bottom, there are 18% likely to switch their financial institution based on the types of crypto services. And that can be from a commercial standpoint or from a retail standpoint and I'm gonna get to the use cases here. This is just in terms of a larger scale ETFs. Australia made the announcement, a couple weeks ago about their spot ETF. We have large private and public companies that put this on their balance sheet. None of this is anything that a financial institution is putting on their balance sheet. These are third party vendors that help you offer these types of products to your, members and your customers. And so they've gone through the scrutiny and have the certain licenses and KYC and AML and all of those things.
Patti Wubbels: (
So I always try to make a point of that, El Salvador was brought up a couple of times. There's a couple other countries. Mexico was actually talking about bringing on. If you think about this is a worldwide. Actually had somebody the other day ask me in Minnesota, was giving this presentation and they said, so Bitcoin here is the same as Bitcoin, like in Singapore or Africa. I'm just like, yes, it's all over the world. And so when you think about some of these places that have broken systems, you can understand their perspective of trying to figure a way out of it. This gave them an alternative, whether it works or not. I don't know, but we take for granted sometimes the system we have here in the United States, from a banking and credit union standpoint. And so sometimes it's hard to understand why anyone would wanna do all that.
Patti Wubbels: (
This is a really important slide because we find that the diversity in crypto may be different than what you think it is. We actually talked earlier on the panel when they were talking about underbanked or unbanked. This is just here in the United States in terms of interest, and this is building digital wealth that they weren't able to do before. So as a financial institution, this isn't about disintermediating, this is about being part of that conversation. And if they're in this space now and you are able to be part of that conversation, helping them build their digital wealth. Now they become a great opportunity for a cross sell, for a mortgage loan for other accounts and so forth. So the diversity here is very important. We talk about this at pretty good length when we're going through this with a financial institution.
Patti Wubbels: (
Again, if you are looking at the gen Z or millennials and going off to that market member or customer acquisition could be a reason why you would look into cryptocurrency. These are the use cases. So these are other financial institutions that are out now that have products. The custodial service is the easy way for a financial institution and get involved. Again, it's very intimidating for an average person to know if I lose my keys, I lose all my money. But if I have my financial institution as a backup with that third party, that's helping you provide the service, then that makes it less of a barrier of entry. And so custodial services not only offers that, it's like a digital safety deposit box, but it also allows a financial institution to further grow out their crypto strategy if they wanna do lending at some point, if they wanna offer other products.
Patti Wubbels: (
So the custodial is basically your baseline for that. Trading is where the money is at. As I mentioned before, the outflows that are going to the exchanges, there's the buy, there's the sell, but there's also the spread in between and that's where a lot of that money is being made by those exchanges. And in these examples here, if you look at vast bank, vast bank was the first FDIC insured institution to offer buy, sell, trade on their mobile banking app. It took them about a year and a half or two, to develop their risk rating plan and they wanted to be able to offer, they started with six coins and they added more since then, if you go to their website, you can see very clearly which coins that they offer, but they have a whole policy procedure.
Patti Wubbels: (
Everything has been vetted out. They grew in eight weeks after post-launch, they grew their net new customers by 25%. Again, they were only 700, 750 million at the time that they launched it. So, very interesting, the rest of the institutions on this have gone with the "nig product", which is fine. It's just that there are other options as well. And so knowing if and all of this is to just facilitate conversations within your teams to say, are we okay with just a Bitcoin offering? Do we wanna offer other things? What does that look like down the road? And so just to know that there are again other vendors and I'll get to that slide. Rewards is a great place for financial institution to offer crypto rewards, we get into that. I only have three minutes left, so lending is a very low risk, high opportunity for a financial institution.
Patti Wubbels: (
They can over collateralize the loan and set it to call if the market goes down, which obviously is right now, but it is another opportunity for income for a financial institution. We talked a little bit already about stable coins and blockchain technology. We haven't seen it yet in the US, but in other places, there are high yield opportunities. These are the vendors that we have and not all of them are on here that just happens to be on this particular slide, lots of third party vendors that have different focuses on the crypto area. So again, this is nothing that the bank or the credit union has to come up on their own. They don't have to go out and hire the expert. These are great third parties that have offerings and again, from a back office or a retail side of it and we've built out the market scan to evaluate which ones would be best for your financial institution.
Patti Wubbels: (
Decentralized finance. I talked real quick about the story of Uber and the taxi industry. It's again, not anything where the financial institutions need to feel like they're being disintermediated. It can be a collaboration and we're seeing more and more that and finding out what works. Regulatory guidance, we do touch on regulatory guidance. For banks, OCC, and FDIC said, yes, you can participate in cryptocurrency. You can offer it to your customers. We just ask that you submit a package that tells us, what's your plan. How did you risk grade it? How are you gonna do it, all of those things and we'll send you a letter of non-objection. The credit unions don't have that layer. They just said, make sure you're doing your due diligence, like you would be on any other vendor and be able to show that to your regulators.
Patti Wubbels: (
The president's working order, executive order was positive in saying, all you three letter agencies go out there, find out what's wrong with the system now, or what's broken and look at this new technology and see if there's a way for collaboration. So we see a lot of that. As someone said before, they're each jockeying for their participation in it. SEC announced that they're hiring a bunch of people to be part of their crypto team. So they're looking into it. The federal reserve does have that open public comment for CBDCs. The link is there. And, you see other states at a state level, in Colorado, you can pay your taxes with Bitcoin. California, they're coming up with their executive order for blockchains spurring that blockchain technology. The big takeaways that we talk about are defending your source of funds, driving interest or non-interest income acquiring new customer market base, increase customer engagement.
Patti Wubbels: (
So people will be going to your app more frequently because we know that's what they do on the other applications. So that gives you an opportunity to potentially cross sell, avoid being disintermediated, new disruptive payment rails that are emerging. And now are back to that Oprah moment, I will say, too and then we can offer this deck. We do have more information in the appendix, as far as payment, rails and alternatives that are starting to come up. Crypto crime illicit activity was a big deal. It's actually, now that we have companies like chain analysis, they are able to trace that activity and narrow down where that illicit activity is. So 0.15% in terms of crypto. Again, doesn't take away the malware and people who are getting tricked into giving over their keys and stuff. But in terms of illicit activity, it continues to go down. My time is up and that's it. Thanks guys for being here.