Small banks set to go live with bitcoin trading

A group of community banks are preparing to achieve a high-tech goal they set last year: allowing customers to buy and sell bitcoin on mobile banking apps.

An estimated 300 banks, Some of them revealed their plans in June, you will start work in the first or second quarter with this service with the help of Fintech NYDIG. Banks, the American Bankers Association, and Independent Community Bankers of America have made investments in the company as part of this effort.

Zach Bishop, Maxi Matt in Synovus

Zach Bishop (left), executive vice president of technology, operations and security at Synovus Bank, sees digital assets becoming more important to banks. “We’re struggling with portfolio sharing,” says Matt Maxi (right), Synovus’ chief innovation officer.

Several regulatory and security concerns have been worked out in the months since the initial announcement, and partnerships and integrations between NYDIG and existing technology vendors for banks have been finalized, according to participants.

Officials at the Banks and Commercial Group said that the initiative addresses a need clearly expressed by customers.

“We’ve seen a lot of cryptocurrency activity from our clients’ accounts, and some of the investments have been rather large, and that obviously caught our attention,” said Harold Reynolds, CEO of $1.3 billion BankSouth in Greensboro, Georgia. It is among the banks aiming to roll out bitcoin trading in their mobile app by the middle of the year.

Posted on Tuesday’s blog ABA CEO Rob Nichols cited a Pew Research Center survey that found 16% of Americans have invested in, traded or used cryptocurrency.

“While there remains a great deal of uncertainty about the future of these assets, one thing is certain: they will not go away,” Nichols wrote.

Besides helping to retain customers, bitcoin trading can lead to revenue growth and keep banks competitive, industry officials said.

The first bank to hit the road is not a NYDIG client. Vast Bank in Tulsa, Oklahoma, partnered with Coinbase and began providing support for cryptocurrency purchases through its checking accounts in October. It currently supports 12 types of cryptocurrencies.

“The launch of massive crypto banking has gone well,” said Brad Scrivener, CEO of the $783 million asset bank. “In the first four months since launch, we have added nearly five times our historic retail customer base and these customers are located in all 50 states and three US territories.”

Getting ready

BankSouth is a beta tester for bitcoin trading with digital banking provider, NCR, and with NYDIG. It also invested in NYDIG recently but declined to disclose the amount.

“We are using investments to get more exposure to things to come and where the bank can be value-added,” Reynolds said. “So we hope to get a good return on our investment, but we also hope that it will elevate the banking experience for our customers.”

Keith Sebad, chief strategy officer, said BankSouth is constantly looking for ways it can bring fintech companies to better serve customers rather than disrupt the bank-customer relationship.

The Bank recently revised the recommendations in the book The Three-Square Solution: A Strategy for Leading Innovation. “

The so-called third square in the book is building a business model for the future.

“We really think the future is going to be driven by a lot of fintech innovation, our third fund,” Spade said.

Synovus Financial in Columbus, Georgia, is also planning to launch bitcoin trading in a mobile banking app, and said it has invested in NYDIG. It declined to disclose when the new service will start or the amount of investment in financial technology.

Synovus has seen clients withdraw funds from the bank and place them on digital asset exchanges such as Coinbase.

“We know that our customers currently have an active interest in these business models,” said Matt Maxi, Head of Innovation at Synovus. Instead of sitting back and letting fintech take over this work, “we’re fighting for wallet share.”

Zach Bishop, executive vice president of technology, operations, and security at the $56 billion Synovus company, sees digital assets in general becoming more important to banks. Today, he noted, banks are lending on the basis of physical assets such as trucks, agricultural equipment and commercial real estate. But as the movement toward digitizing assets and placing them on public blockchains with unquestioned records of ownership and value, as well as blockchain-based security, continues, the banking industry will follow.

Cryptocurrency is the flavor of the moment, according to Bishop.

“That doesn’t mean it’s going to disappear in any way,” he said. “But we believe this is the starting point for how the operating structures at the back end of the bank need to start shifting towards working on blockchain. Cryptocurrency was the first place we wanted to be.”

Bishop said that when looking for partners, Synovos leaders thought about safety and security, including safety protocols, risk programs and inclusion with regulators and examiners.

Every bitcoin purchase includes a public key and a private key. A public key is like an email address that a buyer can send bitcoin to. The private key is like a password.

“But unlike a password, if it’s lost, stolen, or hacked, it can’t be reset,” said Patrick Sales, NYDIG’s chief innovation officer. “That’s why you hear stories of people losing $200 million in bitcoins or crypto exchanges being hacked and people losing their bitcoins. It means someone was able to get those private keys.”

Bitcoin buyers can keep their private keys in a hot wallet – in other words an online program or application – or cold storage, an offline device or server.

NYDIG uses cold storage only.

“Because of that, we can eliminate cybersecurity risks, and that makes it an exercise in physical security,” Sells said.

Another point Sells makes about NYDIG security is that it operates in a closed ecosystem. A bank customer can use funds from their bank account to buy and store bitcoins with NYDIG, but bitcoins cannot be transferred to a different wallet. This mitigates the risk of bitcoin being stolen from a bank partner’s mobile application. Bitcoin stored with NYDIG can only be sold for cash, then that cash is deposited back into the customer’s bank account.

NYDIG examination

ICBA has been investing in fintech startups for five years through its sponsorship of the ThinkTech Accelerator Program in Little Rock, Arkansas.

“It made them more comfortable with the idea of ​​having a small, angel-type investment in startups,” said Carrie Ransom, managing director of BankTech Ventures, an investment fund set up for community bankers with the support of ICBA.

Ransom said ICBA brought the idea of ​​investing in NYDIG to BankTech Ventures and endorsed it. He declined to reveal how much BankTech Ventures has put into the company.

Ransom said that several banks investing in BankTech Ventures are interested in working with NYDIG.

“Our banks have tremendous interest in bitcoin,” he said. They want to have a solution, so they don’t just let that money leave the bank. They want something they feel confident is safe and compatible.”

That trust, he said, comes from the people who work at NYDIG as well as from its investors, partners and customers.

Ransom said that the fact that NYDIG is limiting its support for bitcoin gives bankers relief as well.

“Risk management is an important part of how banks think about their world,” he said. “They want to continue to evolve and innovate, but they have to do it in a way that is managed through risk management.”

Nichols said on his blog that the American Bankers Association invested in NYDIG because of its compliance-first approach, its partnerships with technology vendors that serve community banks and its focus on supporting banks rather than competing with them.

“ABA strongly believes that banks should have access to the tools, partners, and regulatory frameworks that allow them to meet the needs of their customers,” Nichols said.

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