Blockchain growth would put the market’s value at USD 52.5 billion, with researchers expecting the applications of blockchain in banking and finance to reach USD 22.46 billion in 2026. At this rate, traditional banking institutions face disintermediation if they fail to adapt to the next wave of innovation. We’re already seeing the potential of cryptocurrencies and DeFi (decentralised finance) in action:
- Lower transaction fees
- Lightning-quick international payments
- And easier onboarding and KYC processes
- More accessible financial services
Blockchain purists claim that these and other benefits make a strong case for removing TradFi from the equation. In fact, many intermediaries such as clearing houses, lenders, and insurance companies seem to not be needed anymore. However, institutions can position themselves in the landscape and make use of blockchain to improve processes, reach a wider market, and create new revenue opportunities. We’re already seeing acceptance from governing bodies like the US’s Office of the Comptroller of the Currency. Seeing the potential of the blockchain, they approved the use of stablecoins and blockchain tech to improve transaction speeds. As blockchain use becomes more popular, banks must be ready for the transition. It may however be difficult to identify the real opportunities and use cases of blockchain in finance. To help, we’ve put together the top seven blockchain revenue opportunities for banks.
1. Providing Liquidity for DeFi Loans
Providing liquidity to existing DeFi protocols is the simplest option for generating a return. It’s an excellent way to generate a yield on digital assets that banks already have sitting in their balance sheets. DeFi yields are typically much higher than anything seen in traditional financial products. Traditional savings accounts in the EU offer up to 1.5% per year at the most, while a microlending protocol such as Tropykus can offer 4.09% and some liquidity pools can reach 50%. As you know, DeFi is characterised by the ability to conduct business across networks of unknown parties. For this reason, loans must be collateralised to protect the lender from counterparty risk. Higher yields and lower counterparty risk makes DeFi lending a considerable opportunity. Some popular DeFi protocols include:
- Tropykus
- Aave
- Bancor
- Uniswap
Note: Impermanent losses occur when liquidity pool pairs deviate from their original ratio.
2. Crypto Custody Services
Cryptocurrencies still have not reached mainstream adoption. For some consumers, the technology may seem too complicated, while others may not want to be responsible for the safety of their funds. Consequently, users often turn to custodial solutions to keep their assets safe from hackers. With digital assets, custodians do not technically store any assets because all data and transactions live on the blockchain (public ledger). Instead, it’s all about private key management. There are many ways to self-custody keys, but overall it’s risky, especially for beginners. An example is Nuri, a Fintech company that offers a bank account with an integrated Bitcoin and Ethereum wallet. Nuri lets users choose between its its custodial (beginner) and non-custodial (advanced) wallets. Custody services allow banks to:
- Cross-sell to customers (fiat or crypto-based products);
- Generate yields by staking or lending the digital assets they hold
- Offer exchange services to clients
3. Real-time Fiat and Digital Asset Payments
One of the features that attract people to cryptocurrencies is their use for payments as they offer:
- Faster transactions;
- Greater security;
- 24/7 transaction processing.
Executive Director of the Blockchain Association Kristin Smith believes that “Stablecoins, like USDC, can power faster, 24-hour real-time payments in a way that the existing US payments infrastructure can’t handle.” Banks can take advantage of this by:
- Offering P2P crypto payments through existing online banking platforms
- Using cryptocurrencies as rails for international fiat transactions;
- Charging basis points per transaction for their services.
4. Digital Asset Trading
While transaction volumes are smaller than in traditional markets (FX, stocks, etc.), people still trade billions in crypto each day. A single Uniswap pool can see billions of dollars in transactions each week. But the whole exchange sees more than $1 billion in transactions each day. A bank could generate a hefty sum based on a nominal transaction fee of a few basis points with these numbers. Typical trading fees range from 0.2 - 0.5%. While there are other trading options available, banks are in a good position to offer:
- Trading directly from the banking app
- Investments and savings at a glance
- Unique trading products
- Enhanced security and insurance
5. Crypto Savings Accounts
Banks can offer attractive returns for interest-bearing accounts since crypto yields are considerably higher than TradFi ones. For example, banks can create a term deposit product that uses the funds to stake stablecoins or higher-risk assets. At maturation, the banks pay customers the yield on their TD but keep any excess from crypto staking. As previously mentioned, Tropykus microsavings is a popular option that may suit a crypto savings account, especially in emerging markets, as it currently offers 4.09% APY on rBTC.
6. Stablecoins
Stablecoins are becoming more popular in the crypto space as a way to hold fiat equivalents in digital form. They provide a secure gateway into the DeFi space without the associated volatility. A few of the major coins include:
- Tether
- USD Coin
- Binance USD
- TerraUSD
- Dai
Here there is plenty of room for competition as the largest stablecoin only has a market cap of USD 82 billion. This number is much lower than the quadrillions of dollars people and businesses transact through the FX market. Australian Bank ANZ recently minted their A$DC token in what’s likely to be a world-first in the banking industry. Victor Smorgon Group, an investment company and ANZ client, was the first to use it, transferring AUD 30 million to a digital asset fund manager. Some ways that banks can benefit by creating their own stablecoin include:
- Attracting clients who want an easy way to convert fiat to digital assets
- Supporting high-net-worth clients with cryptocurrency transactions
- Generating deposit, withdrawal and transaction fees
- Attracting new customers to your trading platform
Stablecoin issuers also charge issuance / redemption fees. Assuming an annual in/out flow of $10B and a 0.1% issuance/ redemption fee, this could generate $10M in revenue.
7. Tokenised Assets
Tokenisation is making illiquid assets more accessible to the masses. This scenario uses blockchain technology to create a digital representation - a token - of a non-bankable asset. By dividing an asset such as a painting or an old-timer car into smaller parts represented by tokens, these investments can become accessible to a broader group of people. These assets have traditionally only been available to wealthy customers, so banks are in a great position to access this large customer segment. Tokenised assets are also cheaper to issue and to hold, creating cost savings for all involved. A report by Finoa and Cashlink found that tokenisation can achieve cost savings of 35 - 65% across the entire value chain. Cryptocurrencies and the Blockchain Look Like They’re Here to Stay Nationwide crypto approvals, banks creating their own currencies and stablecoins and growing blockchain adoption suggest one thing: cryptocurrencies and the blockchain will be part of the future banking and financial services industry. But bridging the technology gap between TradFi and the blockchain can be a lengthy and expensive process. To avoid having to build in-house infrastructure to communicate with the blockchain, banks have the option of using Open APIs and embrace Open Banking. Open Banking APIs short-cut the integration process while still providing the necessary security that banks need. And they additionally often offer out-of-the-box compliance, ensuring that banks comply with applicable regulations.
