Independent Banker - July 2021 - 37

Next: The Fed's approach to a digital dollar 
all different sides are taking a look,
with central banks researching the
technology and possibilities of issuing
central bank digital currencies,
and private sector innovation
[continuing]. It's a confluence of
different factors. "
This perfect storm of interest has
led to new solutions that enable
community banks to dive into the
cryptocurrency pool. For example,
solution provider NYDIG, the
bitcoin subsidiary of Stone Ridge,
a $10 billion-asset alternative
asset manager, provides three
main bitcoin services for financial
institutions: a trading platform,
a rewards platform for debit and
credit cards, and an interest platform
where consumers earn interest in
bitcoin instead of dollars.
" We're trying to empower the
incumbents-whether that's
existing banks or existing service
providers-to be able to offer these
types of products and services, " says
Patrick Sells, head of banks solutions
at NYDIG.
Quontic Bank, where Sells was
formerly chief innovation officer,
stepped up as an early adopter of
cryptocurrency offerings, launching
a bitcoin rewards checking account
in late 2020. The $1.4 billion-asset
digital bank in New York City now
has undergone a soft launch of the
program, having signed several
hundred customers to the program,
with plans for a full rollout later
this year.
" It was important just to be first
to market with this product, " says
president, CEO and chairman
Steve Schnall.
While Schnall shared that Bank
Secrecy Act (BSA) and anti-money
laundering (AML) requirements
were an early compliance hurdle,
Quontic Bank quickly recognized that
the provider it chose would make a
" Customers actually want banks to play the
leading role [with cryptocurrency]. They
don't want a tech company; they want a
bank, because banks are trusted. "
-PATRICK SELLS, NYDIG
difference. In this case, NYDIG offered
built-in safeguards, serving as both
the contractual service provider and
the contractual custodian, limiting the
direct risk to the bank.
" The main idea here is that the bank
never actually takes ownership of the
bitcoin, " Schnall says. " We simply
don't take custody. Instead, when
our customers use their debit cards,
they earn a 1.5% reward. We then
take that cash and we fund NYDIG.
NYDIG purchases the bitcoin and
then distributes it to our customers'
subledgered wallet, which [they are]
the custodian of. "
Banks remain skeptical
Despite these advancements, many
banks may be reluctant to dive into
cryptocurrency due to the risks, lack
of regulations or turbulence. Data
released in January 2021 found that
79% of financial institutions had no
interest in offering cryptocurrency
investment services, and a survey of
fund managers revealed that 74% see
bitcoin as a " bubble. "
But the time may be coming when
community banks begin taking up
cryptocurrencies in a more aggressive
manner because consumers are
asking for these solutions. In fact, a
Cornerstone Advisors survey showed
that 60% of cryptocurrency owners
would use their bank to invest in
cryptocurrencies if they could. And
NYDIG reports that 80% of current
bitcoin holders want to move it to
their bank.
New crypto series
The ICBA ThinkTECH
Innovation Series
demystifies cryptocurrency
over three webinars.
icba.org/cryptowebinar
" Nine months from today, banks will
be leading the charge with bitcoin, "
Sells says. " Customers actually want
banks to play the leading role. They
don't want a tech company; they want a
bank, because banks are trusted. "
But even with the opportunity
that lies ahead, experts encourage
community banks to consider
cryptocurrency in terms of their
bigger payments strategies.
" Learn about what's happening
[with cryptocurrency], but recognize,
too, all the innovation and all the
really positive impacts of those
traditional systems and the new ones
coming from the traditional players,
like FedNow, " Laverdure says. " Those
are solving today's problems. " 
Colleen Morrison is a writer
in Maryland.
independentbanker.org Q 37
http://www.icba.org/cryptowebinar http://www.independentbanker.org
Independent Banker - July 2021

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