Crypto Capabilities Bring Revenue to Neobanks

By the end of the year, more than half of the 10 largest neobanks will be offering clients cryptocurrency products.

So said Mark Daly, vice president of growth at Zero Hash, a crypto infrastructure provider that offers a range of products including crypto trading and custody, staking, crypto rewards and non-fungible tokens (NFTs).

There are a lot of reasons they would, ranging from looking at how many customers are sending funds from their platforms to cryptocurrency exchanges, to seeing 20% to 30% of their clients immediately jump on board and start buying and selling crypto.

But beyond that, there’s another dynamic going on, he told PYMNTS.

In the coming year, there will be more and more “crypto exchanges directly competing against neobanks and challenger banks that are operating in this space,” Daly predicted. “That’s because they’re chasing after those high value products — credit cards, debit cards, lending and borrowing. They’ve reached for these high value products that traditional banks or neobanks would’ve offered in the past.”

See also: Crypto Firms Face Turf War With FinTechs, Neobanks Over Service Offerings

That’s one reason Zero Hash is seeing interest for its “crypto-in-a-box” services, which encompass the buying and selling of the digital assets, the reporting layer and the regulatory and compliance framework, he said.

Three Benefits

Another reason is what those neobanks and challenger banks can gain from offering crypto products.

“We typically see three key things: engagement, new revenue lines and new users,” Daly said.

“From an engagement perspective, we see that 20% to 30% of end users will interact with crypto when it’s launched on a platform,” he said, adding that those numbers are not a Zero Hash statistic, but industrywide.

Those numbers fit in well with the results of PYMNTS’ recent U.S. Crypto Consumers study, which found that 23% of U.S. consumers have bought or held cryptocurrency in the previous 12 months.

Read more: The Data Point: 23% of US Consumers Owned Cryptocurrency in 2021

Crypto users log in more and engage with neobanks’ platforms twice as much as non-crypto users, Daly said.

“In terms of new revenue lines, adding crypto to your product enables you to add a spread to those prices,” he said. Additionally, if customers are interacting more with your application, that means more opportunities to sell other products.

The third reason — and certainly a main one, he said — is that offering crypto services “opens up access to new users.”

Ultimately, Daly argued, crypto can move from a sideline to a mainline revenue source.

“I think what we’ve seen over the past year is that crypto’s not going away,” he said. “It’s going to play a bigger and bigger part in things like cross-border transactions, payments and even monetary policies.”

Related: Senate Crypto Bill Debuts, and Crypto Industry Gets Big Wins

“I think the key thing that you’re doing is you’re enabling your users to interact with what we are seeing as the future of finance,” he said. “By that, I mean you’re giving your users the financial literacy to interact in the world of Web 3.0 … you’re giving them an entry point into that market.”

Beyond Buying and Selling

Neobanks and challenger banks are also finding that their crypto offerings have to become more complex, Daly added.

“It won’t just be a simple bitcoin buy-and-sell product,” he said. “That’s not going to be enough. They’re going to be offering a gateway to like a Web 3.0, giving users access to DeFi, to NFTs and doing so with a really simple and beautiful user interface.”

Its complexity will depend on the client and their customers, Daly said. However, Zero Hash can take complex products like decentralized finance (DeFi) staking, where cryptocurrency is loaned to the validators who review transactions and bundle them into blocks to be written onto proof-of-stake blockchains in exchange for rewards — which the validators share with people who’ve staked crypto with them.

See also: PYMNTS DeFi Series: What is Staking?

“Now it sounds kind of complex, but ultimately what they’re working on is a very simple front-end interface where this is all done in a couple of clicks for the end user,” he added.

That’s important for another reason, Daly said, noting that studies have showed that far more non-millennials engage with crypto products then people think. For example, 45% of crypto cardholders are over 35 years old and 11% are in their 50s and 60s.

Crypto rewards in particular have a very strong draw for non-millennials, he noted, adding that other parts, like DeFi and NFTs, are very millennial-focused.

“I think it’s interesting to see how different products have different demographics,” Daly said. “Not just crypto as a whole, but specific products within this market.”