Embedded cryptocurrency infrastructure is coming soon to a financial firm near you.
So says Edward Woodford, CEO of crypto infrastructure provider Zero Hash. From neobanks and FinTechs to payments companies and wealth management apps, Woodford said he believes that every financial firm is in some way becoming a cryptocurrency platform.
Why? They don’t have any choice.
“What is actually driving that is the reverse, which is that every crypto platform is becoming a traditional financial services company,” he said. “Coinbase, FTX — the largest crypto platforms are building brokerage products, they’re building banking products. And so, these two worlds of crypto and financial services are no longer distinct. They’re becoming one and the same.”
Financial institutions (FIs) have been waking up to that new reality since a spate of high-profile and very expensive Super Bowl ads showed that crypto has both the ambition and, more importantly, the money to be a serious threat.
Customers are — or soon will be — saying, “I can now get my paycheck [direct deposited] into Coinbase,” Woodford told PYMNTS’ Karen Webster. “Does that mean that I don’t use my bank as much? Does that mean I don’t use my neobank as much? Hey, FTX is building out a brokerage platform. Does that mean that I don’t use my Robinhood account as much? They are targeting our customers.”
That, in turn, is essentially forcing them to fight fire with fire, building crypto products that don’t just offer customers access to digital assets, Woodford added. That means creating a crypto offering that is not just good, but a more complete and well-rounded crypto product that is good enough to compete.
“One hundred percent, I think now it’s seen as table stakes,” he said, pointing to a client, derivative and stock trading firm Tastyworks. “Within six months, over 20% of their clients actively traded crypto on the platform.”
How Far, How Fast
That can mean they need more sophisticated crypto products — a crypto rewards program that lets the customer put tokens they’ve earned into a staking program and earn rewards, for example.
See also: What is Staking?
“They not only get the initial reward, but then the continuous rewards on the initial issuance of those rewards,” he said.
Woodford said he’s seen clients that were asking for simple crypto products 12 to 24 months ago now saying what they “are looking for is effectively Coinbase out of the box today, but embedded within their own application where [their customers] do everything else.”
More specifically, what Zero Hash clients are trying to do is become “fast followers,” Woodford said.
“Most traditional players at this point are letting the crypto platforms innovate and test out, and then they’re saying, ‘Let’s go ahead,’” and copy it, he added.
In the last year, that includes decentralized finance (DeFi) offerings like staking, as well as non-fungible token (NFT) capability — both of which grew from almost nothing into very, very big segments of crypto over the course of 2021. At the same time, he warned that clients shouldn’t go overboard, instead aligning their strategy with their customer base.
“Offering a trading application in crypto where you don’t offer it in stocks may feel a little bit of an odd tack-on,” Woodford said.
“A successful strategy obviously needs to align with your existing customer base … your core product offering,” he added.
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