HomeCryptoNo Mention Of Crypto As US Banks Plan Digital Wallet
No Mention Of Crypto As US Banks Plan Digital Wallet
January 23, 2023
Seven US banks plan to launch a new digital wallet to fend off threats from Apple Inc. and PayPal.
Several banks, including Wall Street giants JPMorgan Chase, Wells Fargo and Bank of America, are trying to claw market share from Apple Inc., whose Apple Pay service has proven hugely popular.
The digital wallet must take advantage of double network effects
According to a Wall Street Journal report, the service will likely ask bank customers to enter their email addresses at checkout. The merchant would identify eligible consumer cards using infrastructure provided by Early Warning Services, a fintech firm. Customers can load credit and debit cards from Visa and Mastercard.
While cards will be the primary payment method, a positive wallet reception could see banks add other payment options, including direct payments from bank accounts.
However, according to analyst Harshita Rawat, wallets could take a long time to gain mainstream adoption.
“It simply takes a lot of time, a great customer experience (which has to be better than the incumbents, not just similar), and a compelling merchant value proposition to build the two-sided network effects into payments to achieve scale.” Rawat told CNBC.
Holding cryptocurrencies could present significant hurdles
While there was no mention of the inclusion of cryptocurrencies, banks face several hurdles if they offer digital currencies in their wallets. They must comply with stringent banking regulations and adapt risk management practices to protect consumer funds and prevent money laundering.
A recent report from the US Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency said that banks with significant exposure to cryptocurrencies would be monitored. The agencies added that they will prevent unmanageable crypto risks from entering the banking sector.
In addition to compliance burdens, banks need to decide which cryptocurrencies to offer in their portfolios and streamline any technical hurdles to drive mainstream adoption. To accept cryptocurrency payments, banks need to set an exchange rate between cryptocurrency and fiat to protect consumers from volatility.
According to cryptocurrency payments company BitPay, consumers preferred Litecoin for purchases in 2022. Litecoin has lower transaction fees than its big brother, Bitcoin. Conversely, customers used Bitcoin transactions for larger purchases.
JPMorgan CEO Jamie Dimon argued in a recent 2023 World Economic Forum interview that Bitcoin is “a publicized fraud,” disparagingly calling the cryptocurrency “a pet rock.”
Wall Street banks may also avoid the Silvergate Exchange Network due to the institution’s relationship with the collapsed FTX exchange.
Silvergate’s network allows for fund transfers between crypto company bank accounts and traditional financial institutions. FTX clients apparently transferred money to FTX through a Silvergate account belonging to FTX’s market maker, Alameda Research.
Clients withdrew $8.1 billion from Silvergate after FTX imploded, forcing the crypto bank to borrow heavily and sell securities to survive. Deposits in Silvergate plunged 68% in the fourth quarter.
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