Financial Institutions and Crypto Adoption: How Banks are Generating Massive Revenues from Crypto

One sector currently getting rocked by the sweeping effect of cryptocurrency and blockchain technology is the banking sector. With the current growth trajectory of the crypto space concerning the banking industry, institutions that miss out on adopting this asset class risk relegation and obsolescence.

The American Bankers Association (ABA) recently published a 20-page report outlining crypto activities and use cases for the banking industry and regulatory concerns and revenue models.

Some Important Use Cases of Crypto in the Banking Industry

The report classifies crypto assets into four, including cryptocurrencies, central bank digital currency (CBDC), NFTs, and stablecoins. The report further highlighted some critical use cases of cryptocurrency in the banking sector, including:

  • Store of value. Financial institutions can earn significant revenue by facilitating crypto trading on their platforms.
  • Wallet provider. Financial institutions can provide crypto wallet services to customers and charge a service fee.
  • Lending services. Financial institutions can offer crypto-based loans for a fee.
  • Asset management. Financial institutions can offer asset management services to customers and charge a fee in return.
  • Network utility. Financial institutions can provide utility tokens to consumers and earn revenue.
  • Exchange trading. Financial institutions can offer crypto exchange services and realize revenue from deposit and withdrawal fees, listings, transaction fees, and many more.

Cited below is an example of the bolstering effect of crypto on bank revenues.

South Korean Banks’ Revenues from Transaction Fees Grow by 140%

Three South Korean banks that provide real-name accounts for cryptocurrency exchanges recorded a 140% spike in revenue from crypto transaction fees in the second quarter of 2021, as against their collective Q1 earnings.

According to a report from the Financial Supervisory Service through Rep. Yoon Chang-Hyeon, a member of the National Assembly’s Political Affairs Committee; K bank, NH Nonghyup Bank, and Shinban Bank generated 16.9 billion won ($14.7 million) in transaction fees from four crypto exchanges, including Upbit, Bithumb, Coinone, and Korbit. These banks recorded a collective revenue of 7 billion won ($6.05 million) in Q1.

Chang-Hyeon noted to the press, “Compared to the beginning of the year, the number of accounts has increased five-fold, and the balance of deposits has quadrupled, and the coin craze has not yet ended, with Bitcoin prices recently surging again.”

$16.9 Billion Won in Generated Crypto Revenue Split Among Three Banks

Based on revenue, K Bank recorded the most from crypto transaction fees, with 12 billion won in Q2 composted to the 5.2 billion won recorded in Q1, 2021. K Bank currently partners with Upbit, South Korea’s largest crypto exchange.

NH Nonghyup Bank came in second place with 3.13 billion won in Q2 from its partnership with Bithumb, compared to its 1.3 billion won recorded in Q1. This bank also made 1.45 million won in Q2 from Coinone, a significant rally from 333 million won realized in Q1.

At third place was Shinhan Bank, with only 343 million won in Q2 from crypto transaction fees, in partnership with Korbit. Shinhan Bank recorded 175 million won in Q1.

South Korean Ramps Up Crypto Regulatory Requirements

This positive development comes amid a sharp crypto market crash recorded between May and July (Q2) and intensifying regulatory pressure on exchanges by Korean authorities. In July, over 27 foreign crypto exchanges operating in Korea received notices from the Korea Financial Intelligence Unit (KFIU) to register with the agency under the amended Korean anti-money laundering (AML) regulations.

Crypto exchanges in Korea are also mandated to acquire a certification in information security from the regulators.

Meanwhile, Korean authorities have proposed a new tax regulation to clamp down on crypto-tax evaders. The regulators involved have moved to acquire permission for tax authorities to seize crypto assets of tax offenders.

55% of Top 100 Banks are Directly out Indirectly Invested in Crypto

The Korean story is just one of many positive results of crypto adoption by banks and financial services globally. And as more positive testimonies emerge, more financial institutions will venture into the booming crypto industry.

According to a recent report by analytics firm Blockdata, 13 of the world’s most prominent banks have pushed a total of $3 billion in funding into crypto and blockchain companies. The analytics company added that these banks used funding rounds as a proxy of investment in the cryptocurrency industry.

Blockdata also revealed that 55 out of the 100 largest banks based on assets under management are invested either directly or indirectly in crypto-based companies and projects.

Listed below is the complete list of the top 13 banks (in ascending order) mentioned above and their respective investments:

  • ​​Standard Chartered. Invested $380 million in 6 investments.
  • BNY Mellon. Invested $321 million in 5 investments.
  • Citibank. Invested $279 million in 14 investments.
  • UBS. Invested $266 million in 5 investments.
  • BNP Paribas. Invested $236 million in 9 investments.
  • Morgan Stanley. Invested $234 million in 3 investments.
  • JP Morgan Chase. Invested $206 million in 8 investments.
  • Goldman Sachs. Invested $204 million in 8 investments.
  • MUFG. Invested $185 million in 6 investments.
  • ING. Invested $170 million in 6 investments.
  • BBVA. Invested $167 million in 5 investments.
  • Nomura. Invested $146 million in 5 investments.
  • Barclays. Invested $12 million in 22 investments.

Conclusion

The crypto and blockchain industry today states peculiar similarities with the boom of the internet in the mid-90s. At the current growth pace of the industry, banks and financial institutions that fail to integrate themselves in some way with cryptocurrency and blockchain technology risk getting left behind, much like how many organizations went bust in the 90s.

Financial transactions and banking are deeply intertwined, and with crypto increasingly becoming the preferred means for facilitating transactions, banks must take heed.

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