Andy Schmidt, vice president and global industry lead for banking at the global consulting firm CGI, is on a quest to understand what crypto can do for corporations, people making payments, and investors. So far he hasn’t seen much reason to move from fiat currencies to crypto.
“A traditional crypto based transaction can certainly carry remittance information that would be helpful in updating ERP systems, but we already have ISO 20022 which can be used to carry that information, and existing systems are still in the process of migrating towards being able to use this standard. If the parties used crypto, the payee would need to be able to unpack the payment message to access the remittance data, and I’m not aware of ERP vendors going that route yet, because the client demand isn’t there.
“It’s one thing to want to send crypto, and another thing to want to receive it, especially at point of sale because you would need yet another POS device to accept that form of payment. And being yet another payment type creates challenges for the payee in a world where digital payment providers like PayPal and Venmo already abound using existing currencies and existing rails”.
Some online retailers, such as Overstock.com, were accepting payment in bitcoin for a while, but they realized the volatility was so high that they never actually took possession of it, Schmidt said. Instead, these payments were routed directly to an exchange where they were immediately converted into dollars. This is one of the reasons why the commercial case for crypto remains largely theoretical, Schmidt added.
“Crypto in specific and virtual currency in general is much more niche at the moment because it has to compete with existing rails in the key areas of speed, volume, cost and finality and has yet to become sufficiently better than existing options to incent the market to change. For example, consumers can pay their cable bill and rent in near real-time today. Managing crypto and deciding to use it as a payment type creates an added layer of overhead. You need a compelling reason to change for the average person, much less the average corporation, because every layer of abstraction creates friction that gets paid for in either time or money.”
Schmidt did think that virtual currency in the form of central bank digital currency (CBDC) might improve financial inclusion, but that concept was challenged by the Bank Policy Institute which represents national, regional and foreign banks – decidedly the legacy banking establishment.
“For some time, politicians have expressed hope that a CBDC could benefit low- and moderate-income Americans. Years after such talk began, however, one thing is missing: any explanation of how,” the Institute said in a paper.
Practical Financial Inclusion
Some neobanks, like Varo and Chime, are making banking more accessible by eliminating fees, including routine overdraft fees and offering access to payroll checks a few days early.
But perhaps the most successful way to reduce the percentage of unbanked isn’t an independent fintech but a combination of a nonprofit – the Cities for Financial Empowerment (CFE) fund that works with 85 coalitions across the country and certified participating banks and credit unions offering low fees, low minimum balances and no overdraft fees through Bank On.
The Cities for Financial Empowerment Fund (CFE Fund) has announced there are now 200 bank and credit union accounts nationally certified as meeting the Bank On National Account Standards, just eight months after the 100th account was Bank On certified. Banks and credit unions offering certified accounts comprise over 56% of the U.S. deposit market share, and 47% of all US bank branches offer a certified account. Over 3.8 million Bank On certified accounts were open and active in 2020, in 80% of US zip codes, according to the Federal Reserve Board of St. Louis’ Bank On National Data Hub.