Neobanks, and Investment Platforms Stepping Into Crypto – Should Crypto Exchanges Be Concerned?

Despite regulatory scrutiny and uncertainty, when it comes to cryptocurrencies, one thing is clear: they are continuing to enter the mainstream. In the past year, nations like El Salvador have made Bitcoin legal tender, while a range of big banks and fintechs have entered into the space offering users access to a selection of cryptos to keep up with demand and ultimately stay competitive. The list, which includes established payments firms like PayPal, CashApp, Square; banking apps like MoneyLion, N26 and Revolut and evolving investment platforms Public.com, raises an important question: are crypto exchanges losing their niche and should they be concerned? 

To fully understand why these platforms have moved on from their initial scepticism, it’s important to look at how investing has changed, and who is responsible it  Due to the pandemic, younger, tech savvy individuals working from home, spending more time online, and flush with stimulus money found solace in investing. As a generation known for not accepting things as they are, simply because it’s how they’ve always been, they relentlessly refused to approach investing in the “traditional way.” 

These digital natives leaned into social media, memes, community, creativity, and pushed Wall Street to the brink in the process. The result: a rising class of new retail investors, assets valued by their social currency and utility i.e. meme stocks and overall massive growth in crypto. Now two years into the pandemic, individuals can get rewarded in Bitcoin for purchasing burritos and Reddit is an indicator of potential stock performance. Taking a step back, the result of these trends raises a number of questions about the future of investing.   

Are meme stocks a better investment than traditional ones?

In early 2021, Reddit users battled with Wall Street by skyrocketing GameStop’s stock share. This along with the rise in meme stocks show that Wall Street is no longer dictating what is worth investing in and what isn’t anymore. Many argued the power was moving into the hands of the people. In reality, a new approach to valuation is rising, one that’s based on the social worth of a company versus traditional notions of profitability. It also poses challenges for investment platforms to predict and plan for rises in trading volume, a main example being the multiple outages faced by Robinhood during the GameStop frenzy. Regardless, of the true value, meme stocks change the game for investment platforms.  

Using crypto as a means of staying competitive

Despite heavy regulatory scrutiny in the US, Public.com, which began as a social trading app for stocks, is now launching a crypto offering. The platform will soon support trades in bitcoin, bitcoin cash, ether, ethereum classic, dogecoin, litecoin, stellar, zcash, cardano and dash. Public.com, despite being a smaller company than paytechs, neobanks and established crypto exchanges, has tailored to a growing, young demographic looking to trade in meme stocks.

Why do this? Freddie Evans, Sales Trader at UK based digital asset broker GlobalBlock said, “Traditional investment platforms have been slow to incorporate digital assets, as a result they have lost potential clients as people are increasingly looking to benefit from the expanding crypto markets. With the asset class being so successful, it is only natural that trading platforms will provide some crypto trading capacity.”

Public offers zero-commission stock trading and has an added social media component that could leverage the emerging meme stock-fuelled retail investment frenzy:

•   Shiba Inu’s price has grown by 256.36% in the last month and by 24,459,593.97% in the last year.
•   Dogecoin has had a turbulent month, dropping in value slightly, but in the last year, has gone up 8,765.17%.

As Osato Avan-Nomayo pointed out on the CoinTelegraph, “Public’s foray into the crypto space could be part of the company’s plans to rival major stock trading platform Robinhood.” With previously solely traditional stock trading platforms moving into the digital, companies like Public must do so to remain competitive or risk getting left behind.

Whilst Public’s announcement challenges Robinhood, Robinhood’s latest news challenges the established crypto exchanges, as it recently revealed it will be testing and eventually implementing crypto wallets for its users to trade with other wallets. Users had previously been able to buy and sell a few cryptocurrencies including Dogecoin and Bitcoin, but had been unable to send those coins to external wallets or receive them from elsewhere.

The move will open Robinhood up to many of the opportunities in the crypto space that rivals like Coinbase have been able to capitalise on. It simultaneously pushed the company into an area with even more regulatory obscurity.

But what has caused this growth and should crypto exchanges be concerned and threatened by these announcements?

Dave Abner, Global Head of Business Development at Gemini told The Fintech Times, “Every company should have a digital asset strategy so it’s not a surprise to us that neobanks and investment platforms are providing access to select crypto services. We see opportunities to partner with them to provide crypto investment solutions to their customers through white labelling and API integrations.” 

Voyager‘s CEO, Steve Ehrlich said, “Crypto-first platforms know what customers want when it comes to crypto. We have crypto experts building out our products, as well as comprehensive resources to help customers on a journey that many are just embarking on for the first time. We don’t consider crypto to just be an ‘add-on’ service–there is no simple translation from a regular banking or investment platform to a crypto platform. They operate very differently. So if customers are interested in crypto services, they will turn to a platform that specialises in it. You can look at it this way: if a customer is looking for electronics, they’ll likely find better services and products at a dedicated electronics store, versus a general superstore with an electronics section.”

The emergence of crypto amongst neobanks

The talk of CBDCs and the establishment of a fiat digital currency in multiple countries has likely influenced global neobanks to look towards a crypto option as more people have become aware of digital currencies. El Salvador has taken a huge leap in crypto adoption by passing a law making it legal tender, which will likely influence other countries to follow suit. With many global banks focusing their sights on crypto, many neobanks and financial platforms are making similar moves.  

US based MoneyLion has announced it is adding crypto trading to its all-in-one financial services app, joining the ranks of N26, the German headquartered neobank, and Volt, the Australian neobank, and larger corporations like Citi and HSBC. 

The 8-year-old fintech company, which plans to go public later this month on the New York Stock Exchange under the ticker ML, will introduce buying and selling capabilities for bitcoin and ether at its Investor Conference on Monday morning, CEO Dee Choubey told CNBC.

Choubey called the initial development “the beginning of the education process” for its consumers during the “early innings of DeFi” and talked about the potential to explore different yield products, crypto payment applications and NFT marketplaces down the road.

“It’s a very important first step if we think that the future of fintech is DeFi,” he said. “We will have created a segment of the population and have exposed them to DeFi, so when it becomes more ubiquitous, they’re fully prepared to take advantage of it.”

Freddie Evans gave his views on the attitude shift towards crypto saying, “The increase in neobanks adopting crypto has come as crypto popularity surges in the UK, with more than 2.3 million owning crypto in the UK and over 200 million worldwide. Neobanks have been at the forefront in changing the way retail banks operate, constantly looking to take a competitive edge, and crypto is a service that people are increasingly demanding. One reason people are investing in crypto is that returns on cash savings are low, and inflation diminishes the purchasing power of their savings. Also, neobanks have a history of struggling to generate profits; crypto might be their solution to turning into profitable businesses through charging for their services.”

Chris Kline, Co-Founder and COO of Bitcoin IRA added, “Everybody has realised that neobanking is the future, not just for younger generations, but older generations looking for simplicity and access. Old banking institutions, once thought of as “too big to fail”, are now in a new competitive landscape.”

Maurizio Raffone Chief Financial Officer at Credify Pte. Ltd. said, “Neobanks are born from a need to provide easy payment solutions for people who are looking for flexible and cheap banking solutions.”

Explaining how investing in a neobank would differ from a crypto exchange, Raffone said, “Neobanks’ typical client may not be a savvy crypto investor but is interested in having some exposure to the asset class and may not be bothered about NFTs, altcoins or stablecoins and so just having some degree of exposure to BTC or ETH would suffice. On the other hand, crypto exchanges do not really focus on providing any traditional financial service support but do generally provide a greater investment choice and with more sophisticated investment techniques.” 

An anomaly or necessary requirement?

The cryptocurrency hype train is not going to come to a stop anytime soon. With countries’ governments now discussing the potential of a digital currency, more and more people are going to become digitally aware. What does that mean for banking and financial institutions? It means that they must have some form of crypto or digital currency feature. Companies that do not adjust to tailor to this digital change will get left behind as both younger and older generations are becoming digitally aware (as can be seen in neobanking customer demographics) and in a world where customers expect the best level of personalisation, not having a crypto option when that is what the customer wants, is a recipe for failure.