Financial institutions hold the key to unlock crypto adoption

Most consumers believe it will be necessary for financial institutions to embrace crypto-currency for it to become widely accepted.

This is one of the key findings in the Visa study, titled: “The Crypto Phenomenon: Consumer Attitude and Usage”. The study provides global and South African insights.

Based on its sample size, Visa identified five types of crypto-aware consumers − namely active, passive, curious, sceptics and unengaged.

Detailing the study’s findings in relation to SA, Aldo Laubscher, South Africa general manager at Visa, indicates active owners want to use crypto-currencies in their daily lives for normal spending.

For passive owners, they are looking at it as hedging and investment strategies to build more wealth, he states.

“Active owners think financial institutions have a role to play, but because they are so used to the fintech quick-moving environment around crypto, there’s probably some scepticism whether the financial institutions will be able to meet their needs.”

He believes this is something financial institutions and the larger fintech firms in the country will have to look at in terms of their planning and how they analyse their go-to-market approach.

“Clearly, the South African consumer is largely ready and curious, and how we position that in our financial institutions as well as the payment systems in South Africa is going to be interesting to see.”

In SA, there is currently no fintech-specific regulation for crypto assets, but crypto assets are not prohibited.

However, government is making steady progress in its efforts to regulate crypto-currencies like Bitcoin. Last April, the South African Reserve Bank announced the Intergovernmental Fintech Working Group, a group of South African financial sector regulators, had drafted a policy position paper on crypto assets.

While there hasn’t been regulation of crypto-currencies in the country, local banks have been closing down accounts linked with the digital currencies, citing the risks they present.

For example, in November 2019, First National Bank notified South African crypto-currency dealers that it will close accounts for the crypto exchanges.

ITWeb last year reported Absa was being taken to court by South African-based crypto-currency exchange AltCoinTrader for allegedly putting pressure on mobile payment, customer loyalty and rewards platform Zapper to close the exchange’s account.

Nedbank also previously told ITWeb it is in the process of assessing its position in respect of virtual currency dealers/traders.

As to why there’s been reluctance from local banks in regards to crypto, Laubscher explains the issue is around the unknown, lack of clarity and no end-to-end control.

“Because of the different levels of crypto offerings, [for example] Bitcoin and Ethereum, there’s some regulation and some exchange controls that make it slightly tricky to manage, so it’s more restrictive from that angle – although you can still purchase it, it’s not that easy to get through that process.

“Banks want to create seamless experiences for their customers; whenever it is a difficult experience, they tend to be slower in understanding what the client requirement is so they can make it more efficient.”

The other part is around how customers access the service and have trust around the outcome, he added. “If I want to buy NFT on a painting in Paris, how would my bank know that the NFT that I engaged via an exchange is trustworthy? And can they give me that reciprocal comfort that when I pay I will get what I asked for and settle the matter?

“Whether it’s more knowledge-sharing or better understanding of what needs to happen in that space, we need to figure out with each of the banks.”

The study shows there’s near universal awareness among the South Africans, with more than two-in-five of crypto-aware consumers being either active or passive owners, which is the highest of any market.

According to Laubscher, South Africa is the leading market in terms of an illegible community of global active and passive crypto-currency owners.

“They are very knowledgeable, savvy, they want to engage, and they are key participants for growth in the crypto space.”

Laubscher notes that 44% of South Africans that participated in the study are effectively either own active or passive owners of crypto.

Roughly a third said they were curious and/or sceptical, but want to find out more. Less than a quarter are noted as being uninterested, he states.

“Effectively, nearly three-quarters of the South African population that is illegible, based on the study, are actively engaged in understanding crypto more, and nearly half own crypto and are really engaged in terms of how they create wealth around it.”

He adds that active owners indicated they would want to use their crypto to send and receive money, pay goods and have it accepted as payment. “They are very comfortable with what they have experienced as being active owners.

“The curious ones really want to get an understanding of when this reality of trust will materialise from a crypto perspective. They are keen to learn, want to understand more and have some positive perceptions, but they are scared and want to get to a space where they feel more comfortable – I think that’s a sweetspot of opportunity for fintechs and potentially financial institutions in South Africa.”

Globally, 50% of among survey participants said they are interested in their banks offering crypto-currency and crypto-related products.

For owners of crypto-currencies, the findings show much higher figures, as 84% would prefer it if their banks offered some sort of crypto capability, explains Laubscher.

Those that are curious about crypto say if their bank or favourite fintech firm offers it, it would give them that level of trust to engage.

Says Laubscher: “Whether they would switch for the product is still pretty low, except for owners. We saw 39% of owners globally say if another bank starts offering a crypto capability, which is enticing and speaks to their needs, they might actually consider moving.”

In terms of the compelling elements for entry into crypto, the respondents listed crypto cards and crypto rewards as being attractive.

Among current crypto owners, 81% expressed interest in crypto cards, which allow them to convert and spend crypto at the retailers where they shop in the same way they can use a debit or credit card. On the other hand, 84% of owners are interested in crypto rewards, which would allow them to earn crypto as a reward for their card spending.

Crypto cards and crypto rewards also came up favourable among those that are curious about digital currencies,

“If a bank, financial institution, merchant, seller or business was to offer crypto rewards – there’s a very high interest from owners as well as from those that are curious. Owners already have a sense of trust around this [crypto currencies] because for them, it’s around creating wealth to an extent. For those that are curious, if rewards came with crypto they might be very likely to adopt it.”