Banks are waking up to the threat from crypto platforms

The old banking days seem to be over. Many people are switching to a "do-it-yourself" alternative and picking up an interest in cryptocurrency, a new asset class with which some banks seem to be a little late in the race. Will crypto platforms simply beat traditional banks or will these be complementary?

For several years now, the universal banking model has been under threat. In the past, customers appreciated being able to benefit from all financial services – loans, advice, management, payments – under the same banner, which offered guarantees of stability but also saved time and money. With the arrival of the Internet and disintermediation, this model has been smashed to smithereens, even among very wealthy clients. The advice and management parts are often delegated to an external manager. Many individuals take advantage of the low fees of online trading platforms. And these same clients are increasingly attracted to fintechs, whether for payments (Revolut), robo-advisory or crowdfunding. As a result, traditional banks, already struggling with negative interest rates, are seeing a large part of the value chain slip away. This trend is even more visible in the field of cryptocurrencies. The craze for this asset class is huge. The capitalization has far exceeded $2 billion, the trading activity is growing exponentially and new applications (DeFi, NFTs, etc.) are developing at a lightning speed. Who is benefiting from this windfall? It is mainly new entrants such as Binance or Coinbase whose profitability is colossal. In the first quarter, Coinbase recorded 1.8 billion in revenues for a profit of 800 million. This very lucrative business has thus escaped the banks. But a much bigger threat are still lurking. These new entrants, who have gained the trust of their customers, have seized the huge opportunity to offer new asset classes. For example, Binance now includes "tokens" (digital tokens) on stocks such as Tesla via its crypto asset exchange platform. These tokens allow trading in fractions (up to 1/100) of a stock and enjoy most shareholder benefits such as dividends and transferability.

This development calls for a reflection on the future of the financial industry. Indeed, the match between crypto asset specialists and traditional players is becoming clearer. Crypto exchanges now can compete with banks and brokers on their own turf, i.e., the capital market. In the case of Binance, a customer can easily switch some of their cryptos to equity tokens or even other underlyings. This is simply a head-on collision with traditional players.

For their part, banks are gradually opening up to cryptocurrencies. Of course, there are still some "Nein sager" but most of them are reacting. The vast majority now offer certificates (soon ETFs) replicating the performance of Bitcoin or Ether. Others are creating partnerships with crypto banks to offer live trading on cryptos. Finally, the most daring are making a long-term bet on cryptocurrencies and tokenization by investing in the necessary infrastructure.

These initiatives demonstrate that banks have now grasped the degree of urgency on the horizon: if they are not able to offer their customers these new opportunities, it is new entrants such as Coinbase that will not only take advantage of the crypto boom but also take market share in traditional trading activities.

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