By Ray Birch
WASHINGTON—Can cryptocurrency help drive lending at credit unions? According to the leader of one of the first cooperatives in the nation to offer crypto services to its members—and who was speaking to a standing room only crowd of CU leaders—it can drive new loans and more.
Gordon Howe, CEO at $3.6-billion UNIFY Financial CU in Torrance, Calif., said his credit union began offering bitcoin to its entire membership this year to remain relevant and to prevent members from moving to any of the other providers that are playing in crypto. And while the credit union sees a number of other uses eventually for crypto at UNIFY, one is to provide collateral to increase lending opportunities.
“These members have an asset now that they will eventually not want to liquidate and hold onto,” said Howe during a breakout session the drew a large crowd during CUNA’s Governmental Affairs Conference.
This is the second in a three-part series in CUToday.info on cryptocurrency and what credit unions are doing.
Data from UNIFY show the primary use for the digital funds today is as an investment. National data on digital currency also confirms the same thing, with consumers needing a place that will allow them to buy, sell and hold crypto.
UNIFY Financial offers members a digital wallet within its mobile app to work with bitcoin. When UNIFY Financial made the decision in late 2021, it became what is believed to be the first credit union in the U.S. to offer cryptocurrency services. Since that report, other CUs have also decided to enter the crypto space.
As CUToday.info reported, UNIFY Financial announced it is offering its members the ability to buy, sell and hold bitcoin through the integration of solutions provided by NYDIG and the Q2 digital banking platform. NYDIG is a financial services firm focused on bitcoin.
According to UNIFY Financial’s website, the credit union charges a transaction fee of 2.5% based on the purchase amount. A transaction receipt is available showing the details of the purchase. The e-banking page of the credit union’s website includes information on the individual member’s bitcoin holdings. To sell bitcoin, the process is similar with simple interfaces offering the options. The same 2.5% fee applies to sales.
Good Collateral
As members begin to hold onto their cryptocurrency much like they do stock investments with little intention to liquidate in the near term, Howe said that will make crypto a good source of collateral to loan against.
But if the value of that collateral would markedly drop—as cryptocurrency often does—is that a concern for UNIFY? Howe said it will not, for two reasons: One is that cryptocurrency is showing signs of having a somewhat stable floor, and as time goes on that base may become more stable. In addition, UNIFY does not plan to loan against the full market value of crypto at the time of the loan.
“We will loan at possibly 60% of the currency’s value,” he said.
Howe told attendees that offering bitcoin should not be “scary stuff…It is not.” He explained his credit union first offered bitcoin as a means to enter the cryptocurrency market, and may look to add other digital currencies down the road.
Its reasons for doing so go beyond just looking to make loans. According to Howe, another objective is member retention. He said 10% of UNIFY Financial’s new members who came on board since early January, when the credit union began offering the Bitcoin service to its entire membership, have joined as a result of looking to invest Bitcoin.
Being Relevant
And there are additional reasons for the product offering, said Rahm McDaniel, head of banking solution at NYDIG. Cryptocurrency helps a credit union to build relevancy, said McDaniel, who also appeared during the GAC session.
“We believe very strongly there is a role for traditional financial institutions playing in the ecosystem of digital assets,” he said.
Pointing to national data as well as feedback his company has received from consumers, those who choose to buy cryptocurrency often prefer to do it with their trusted financial partner.
“I think what that demonstrates is there's certainly a place for credit unions should they choose to participate,” McDaniel said. “What's more interesting is that this appears to be a clear choice…nearly 80% of people who have not gotten into cryptocurrency say they would like their bank or credit union to help them do it. That tells us this is an access issue, not an issue with cryptocurrency. Their credit union already speaks their language and understands what's important to them. They already trust you. They don't have to open up something new and create some new passwords etc.”
UNIFY Financial’s Howe told the meeting that one of the reasons UNIFY decided to offer Bitcoin services, in addition to market relevance, was its membership had already started buying bitcoin. A credit union poll last year revealed 15% of its current 265,000 members are already interacting with some form of cryptocurrency.
Silver, Gold, And…
Also addressing the meeting, Visa’s Celeste Schwitters made it clear to GAC attendees what lies ahead for financial institutions, noting the crypto market cap at the time of the meeting was $1.9 trillion.
“Silver has $1-trillion market cap and gold is $12 trillion,” she said. “That gives you a comparison as to what we're looking a…Cryptocurrency is changing how people are holding assets and it's going to be the future of the movement of money.”
But despite nearly $2-trillion market, there certainly is risk to the credit union, and it’s primarily reputation risk (the asset itself is not carried on the CU’s balance sheet) related to offering the opportunity invest in what remains a very new market where values can drop significantly in a short period of time.
“Members come into our branches and use our brokerage service; this is the same thing, just the investment is different,” Howe said. “There is risk in investing in the stock market.”
Drawing a Crowd
Yet despite those risks, there remains growing interest in crypto from members and their CUs, observed Glen Sarvaday, managing principal at 154 Advisors, as he looked over a standing-room meeting room in a session that had to turn away attendees.
“We talked about cryptocurrency the last time there was an in-person GAC, and I don’t recall a crowd anything like this,” he said.