Credit Unions – and Other FIs – Must Use Caution in Using Third-Party Crypto Platforms

By Roy Urrico

Credit unions, as well as other small and medium financial institutions (FIs), need to integrate digital payments and stablecoins with tech modernization to compete. However, incorporating crypto offerings from third-party providers could present challenges to FIs. That is the position of Kian Sarreshteh, CEO of Dover, Del.-based InvestiFI, who spoke with Finopotamus about the need for FIs to offer crypto and stablecoin and the threat of third-party providers.

Kian Sarreshteh, CEO of InvestiFI.

Coinbase, for instance, recently launched an all-in-one financial platform for small and medium businesses to receive cryptocurrency, manage assets, and earn up to 4.1% APY on USDC stablecoins. Stablecoins are designed to maintain a steady value, typically pegged to a national currency like the U.S. dollar, using reserve assets to back its value.

While Coinbase's new stablecoin payments offering provides innovative solutions for businesses, Sarreshteh maintained it presents challenges for credit unions and other community financial institutions in the U.S. They may, for example, face deposit outflows, regulatory disparities, competitive disadvantages, and impacts on financial stability.

Understanding Crypto and Stablecoin

Sarreshteh said InvestiFI, which provides a securities and cryptocurrency investment platform for credit unions and other financial institution, began as more of a “crypto” investment solution and they still can do this today, offering credit union members and bank customers the capability to invest in Bitcoin, Ethereum, Ripple or Solana. “There's over 30 coins that FIs can choose to offer to their account holders, all of which have been put through risk management committees by the qualified InvestiFi custodians to evaluate the safeness of these coins. Or if you are interested in becoming part of the stablecoin economy, you can convert your dollars at your financial institution into stablecoins.”

“We were the first company to do a real time crypto to fiat conversion (crypto to U.S. dollar conversion) using the banking core back in 2023 inside of credit unions,” Sarreshteh explained. “When stablecoins became popular a few months ago with the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) it became easy for us to say to banks or credit unions, ‘if you're doing crypto with us, we've already built these real-time conversions, we can do the same thing for stablecoins.’”

Sarreshteh continued, “We're proud to say that we are multi custodial; if there is ever an issue with the primary custodian, we can roll over the account holders’ crypto to the other custodian. But all these custodians support stablecoins out of the box,” he added. “For just your average user at a bank or credit union, when they log into online and mobile banking, it's very easy for them just to go in and buy a stablecoin or sell a stablecoin using their checking or savings accounts.”

The Investment App Threat

“When you look at where the money is going, it is typically going to third-party investment apps that also have banking products. One of the largest apps we see money flowing out to is Robinhood,” said Sarreshteh, noting that Robinhood also offers high-yield savings and checking accounts, and a debit card.

Sarreshteh continued, “Another good example would be SoFi, because you can buy crypto (and) stock on SoFi, you can get a bank account, a loan on SoFi, et cetera. So (users) might move money to Robinhood to invest, but then they realize they do not need their community Bank or credit union anymore because Robinhood has all the banking products, or SoFi has all the banking products that they would need otherwise.”

“Coinbase has done a really good job of branding themselves as the market leader for cryptocurrency in the United States and other countries too. But at least here in the U.S. we do see a lot of those outflows going to Coinbase,” said Sarreshteh. “We have seen internally from the credit unions that we have been live with us, since the new administration that the adoption and trading volume that is flowing through for crypto has really accelerated. We are starting to also see the accelerated outflows of deposits going to Coinbase.”

Sorting Through the Stablecoin Hype and Threats

“A lot that crypto exchanges in general are trying to really drive more adoption and take more of those accountholders from credit unions and obviously the deposits follow,” said Sarreshteh.

“We're actually not recommending that credit unions or banks jump headfirst into stablecoins because the use cases for stablecoins in the United States are still finite.” He also noted there is broad consensus around the use case of cross-border payments.

“If a credit union or a bank has a lot of users from other countries then it becomes potentially more of a pressing need to have a more efficient payment rail to send money outside of the United States,” Sarreshteh added. “Until there's sufficient incentives for a member at a credit union to actually use a stablecoin for a retail payment in the United States, our opinion is we just don't see them being mass adopted at scale.”

Sarreshteh noted Coinbase has many international users. “There is again just a lot more utility for using stablecoins on Coinbase for people have a reason to send money outside of the United States. I think they are more of a threat from a payment rail standpoint for FIs that have more of an international user base. They do have their card (Coinbase One Card) to actually fund purchases.”

Additionally, Coinbase is moving more down the banking path, cautioned Sarreshteh, with the ability to do crypto-backed loans. “We are starting to see a lot more exchanges offer that too. Here at InvestiFi, that is on our roadmap too, to deliver for FIs, fully collateralized crypto-backed loans, as well.”

Do Credit Unions and Community Banks Need to Offer Crypto and Stablecoin?

Sarreshteh pointed out: “Now we are hearing rumblings of some of the larger retailers that want to create their own stablecoin and they plan to attach rewards to (crypto) payments to drive more of that adoption and usage. So, if a credit union or a bank wants to get ahead of that trend and launch a stablecoin solution so they are ready…then that is likely prudent.” However, he offered one caveat. “With all the competing priorities that FIs tend to have rushing to get a stablecoin solution to market likely is not going to move the needle near term for credit unions or banks,” suggested Sarreshteh.

“I think crypto as an investment product is more important to offer near term because we see just a lot more volume and adoption flowing through people buying Bitcoin and Ripple and Ethereum, for example, than we do for stablecoin transactions for consumers, at least in the United States,” said Sarreshteh.

Modernization, he noted, helps credit unions and other community financial institutions attract a younger, tech savvy crowd, especially those more familiar with the crypto than older folks. “The younger generations look for apps to invest in crypto. There is no surprise there at all,” said Sarreshteh. “But what we are seeing is that they want that one stop shop. They want the ability to have crypto and also have a bank account on the same app. So, if they are getting that with these other third-party apps on the marketplace, then they are likely not going to consider a legacy financial institution that cannot offer that full experience.”

Meanwhile, “FIs are continuing to bleed deposits out to the third-party platforms like Coinbase, Robinhood, SoFi, all which offer crypto. I think stablecoins eventually will be more part of the mainstream economy,” explained Sarreshteh. “But right now, I ask a lot of folks at credit unions and banks, ‘Have you paid for anything with a stablecoin recently?’ And no one has told me yes in the last three months.”