This paper was written in collaboration with Ripple.
When the Bitcoin protocol came into existence in January 2009, it was introduced as a peer-to-peer version of cash that would eliminate the need for financial institutions and other trusted intermediaries. Many of the early adopters of Bitcoin and other cryptoassets that have come since have viewed these innovations as a means to disrupt the traditional banking system.
Over a decade later, cryptoasset adoption has soared but these non-traditional financial instruments have not replaced the traditional banking system. We find and will explore in this paper that most owners of cryptoassets would prefer to interact with their digital assets through the trusted and convenient relationships they have with their financial institutions. Notably, our research suggests that there are as many as 65 million Americans who already own or are interested in cryptoassets, and who would prefer to interact with cryptoassets via their bank. Globally, this figure is much larger, especially in markets where the difficulties of accessing cryptoassets are a barrier for most customers.
Banks and other traditional intermediaries have shown interest in building capabilities to serve the demonstrated demand for cryptoassets today and to position themselves for a future in which digital assets could become more important building blocks of financial market infrastructure. But despite expressing their interest, cryptoasset offerings from most banks remain extremely limited in both scope and scale.
Offering crypto services raises a set of technical, commercial, organizational, regulatory, and reputational challenges for banks. Increasingly, the technical requirements to provide crypto services are becoming more accessible, particularly for the largest banks and financial intermediaries that are able to build capabilities in-house. But many institutions, particularly smaller to medium-sized financial institutions, will need to rely on service providers to realize any ambitions in this space. Fortunately, there is a growing set of service providers that have emerged only recently to meet this demand.
For all but the largest institutions, service providers will be the main way through which banks and other intermediaries access crypto capabilities. Commercially, this mitigates the complexity and fixed costs of developing in-house capabilities. Organizationally, integrated service providers reduce the management burden on banks, allowing them to focus on setting and executing their cryptoasset strategy. On the regulatory front, financial institutions are expecting more regulatory clarity and service providers will adapt to enable and facilitate compliance.
Given their existing relationships with customers who value their convenience and security, banks and other intermediaries have important advantages in offering digital assets. Serving the existing demand for cryptoassets and developing their capabilities for the future could position banks as the primary bridge between fiat and crypto economies. Should crypto-related economies become a relevant part of our future, banks with a clear strategy and trusted digital capabilities will be well-positioned to create new value for their customers, while possibly improving their internal operations through the underlying technological advances.
The authors include Eric Czervionke (Oliver Wyman), Ugur Koyluoglu (Oliver Wyman), Michael Wagner (Oliver Wyman), Nikolai Dienerowitz (Oliver Wyman), Keat Lai (Oliver Wyman), Walter Lamolo (Oliver Wyman), and Leo Sizaret (Oliver Wyman). Additional contributors include Brad Chase (Ripple), Patrick Kemp (Ripple), Brady Fox (Ripple), Kelly Browning (Ripple), and Chris Allchin (Oliver Wyman).