University Credit Union Talks Digital Asset Relevancy With CryptoFi
By W.B. King
During a late February webinar centering on implementing cryptocurrency solutions in the credit union space, moderator and CryptoFi CEO Kian Sarreshteh began the hour-long conversation with University Credit Union President and CEO David Tuyo saying it’s been an “interesting last year.”
In particular, he noted, “The last three months with events we are all too familiar with,” alluding to the FTX Trading Ltd. and BlockFi debacles that populated news cycles in late 2022.
The Chicago-based CryptoFi offer crypto-as-a-service (CaaS) solutions aimed at bridging the gap between traditional finance and the digital assets of the future, compliant with all regulations.
Sarreshteh, who noted cryptocurrencies have been around since 2009, has spent the last seven years in the space professionally and believes general interest for the digital asset platform began for most people only recently.
“Back in 2009, I was definitely a skeptic and thought it was going to be a fad,” Tuyo shared. “I was excited by some of the underlying technology but left it on the fringe and never brought it into the center," he said.
Over the last few years, however, crypto has become more of a focus for the $1.1 billion Los Angeles -based credit union that serves more than 52,000 members. Part of the reason for this, Tuyo said, is that there continues to be increases in crypto ownership and transactions.
Given the Golden State is a tech leader in most disciplines, Tuyo was surprised when he learned that according to a recent MSNBC poll, California wasn’t number one in crypto transactions, but rather third. Nevada held the top spot. Nevertheless, the report also noted that upwards of 20% of Americans are involved in some type of crypto transactions.
“As these numbers tick up, these are the numbers we should be paying attention to…we started tracking our cash,” he said, noting that many credit union’s members were “moving a good deal of money” through third-party crypto platforms.
“It poses a risk to our membership. It would be a lot easier or more convenient for them if we had a solution in-house, so we started looking at different solutions,” he said, adding that this process included working with the credit union service organization (CUSO) Members Development Company, of which University Credit Union is one of about 80 credit union owners that average roughly $4.5 billion in assets.
“We looked at dozens of providers and through that process really got educated about the technology, how it was going to work, the risks and regulatory framework,” he said.
Noting that the University Credit Union team is comprised of “data nerds,” Tuyo said Chief Financial Officer Alex Mendes and the finance team did a “fantastic job isolating analysis” and determining what vendors are being used and how much money is going out the door.
At a comparable financial institution, Tuyo explained that industry analysts see this figure at roughly four to six million per month, but University Credit Union transactional numbers are significantly higher.
“When you look at our membership, it makes a lot of sense to have this solution in-house,” he said.
Sarreshteh asked Tuyo when University Credit Union felt that there was a credible threat from third-party crypto vendors. The discovery process, he responded, began in 2019, which included a year-long project assessment. A traditional 90-day tech pilot, he noted, wouldn’t suffice due to concerns related to vendor management, regulation, security and ease of use for both membership and the credit union.
“All these come together to make sure that the solutions are safe and sound for our member owners,” Tuyo said.
Addressing the FTX Trading Ltd. issue specifically, Tuyo said the calamity was a direct result of no oversight and no one following the cash. The silver lining, though, is that the fallout has spurred increased regulatory oversight of the burgeoning industry that he said is still in its “infancy.” And the difference between members using a third party or the credit union for crypto transactions is regulated transparency, he shared.
Agreeing with Tuyo, Sarreshteh said the key variable moving forward is the “qualified custody piece,” which requires the cryptocurrency partner to be regulated, which FTX, for example, was not.
“My thesis is that with a credit union being a regulated institution and with qualified custody being a regulated institution, the chances of these things happening are significantly reduced, ultimately creating a safer environment for credit unions member to transact,” he noted.
In an effort to further enhance its offering, CryptoFi announced in early March its integration with Q2’s Digital Banking Platform, via the Q2 Partner Accelerator Program. This allows in-demand financial services companies leveraging the Q2 SDK to pre-integrate their technology into the Q2 Digital Banking Platform.
“Consumer interest in cryptocurrency is growing tremendously and we are watching as large financial institutions are rolling out digital asset features,” Sarreshteh said. “CryptoFi’s robust set of services and solutions can help level the playing field for financial institutions to provide cryptocurrency solutions.”
Key Performance Indicators
Noting CryptoFi’s solution, which will soon go live at University Credit Union, Tuyo said the freedom for members to move money back and forth to their primary account will streamline the process, while reducing the chance of fraud. A keen eye will be trained on measurable results, he added.
“For those members that work with us in crypto…do we see a lift in lending? Do we see a lift in primary checking account activity? That’s where our CFO is really going to be digging and diving and tracking that type of data,” he said. “We don’t do anything with dashboards and scoreboards at our organization. Everything has KPIs (key performance indicators) and ultimate ROIs (returns on investment) attached to them.”