Consumers want banks to offer crypto

The crypto market saw a sudden uplift on 15th March, following a few days of sideways trading. According to Ron Shevlin at Forbes, Biden’s recent executive order regarding the responsible development of digital assets helped lift the price of Bitcoin, Ethereum, and other cryptocurrencies.

Ari Redford, Head of Legal and Government Affairs at TRM Labs, offered Shevlin a neat opinion about its effects: “The executive order is really a call for coordination—playing quarterback to ensure that regulators are working together to feed into a clear and consistent framework for crypto regulation rather than engage in disparate work streams.”

This is important for traditional banks, and it should encourage them to engage with cryptocurrencies. They would be foolish not to do that, since many Americans are demanding to be able to purchase crypto directly from their bank, rather than use a crypto exchange.

For example, a very recent survey by Cornerstone Advisors conducted in February 2022 found that “one in five American adults hold some form of cryptocurrency.” The generations that favour crypto are Millennials and GenZ, with Gen X trailing a bit behoind, and the Boomers solidly rejecting the idea of crypto.

Twenty-five percent of Gen Zers already own crypto and 29% plan to buy it within 12 months. Thirty percent of Millennials already own it and 27% will buy it this year. Furthermore, among the Gen Zers and Millennials with crypto, 40% bought or sold it five or more times in 2021.

With regard to banks, the survey revealed that around 50% of Americans that already own crypto would “definitely use a bank to invest in crypto if they could, with another 42% indicating that might do so.”

But banks don’t seem to be getting this message. Shevlin writes: “According to Cornerstone Advisors’ What’s Going On in Banking 2022 study, just 1% of US banks provided cryptocurrency investing or trading services before this year.” What is more, only 1 in 10 American banks plan to offer a crypto service in 2022. It seems that although regulators are trying to make it easier for the banks to become involved, bankers are still tied to their old views.

One senior bank exec told Cornerstone:

“Why are there more cryptocurrencies than US banks and credit unions combined? When is the consolidation and fallout going to occur?”

While another said: “Cryptocurrencies aren’t stable enough to be a legit payment mechanism as the value could fluctuate during the transaction. Instead of pushing crypto ATMs and ways to create your own currencies, it would be great to see more focus on how to solve issues like unaffordable housing and the student loan.”

It seems he’s missing the point, and indeed, the demand. Although nt all of them are so blinkered. One banker actually sounded positive, commenting, “We need to accept that cryptocurrency is here and start planning TODAY on how to approach this and not wait until it’s too late and we’re reacting versus planning.”

We know that banks are risk averse, and have consistently issued warnings about the risks they see with crypto, but it would seem that based on the consumer view, the biggest risk to the banks is not getting involved with cryptocurrencies at all.

The financial sector needs AI

How can artificial intelligence (AI) support banking services, and are banks looking at it favourably, are two of the questions that Insider Intelligence’s AI in Banking report sets out to answer. In response to the second of those questions, it appears that 80% of banks are highly aware of the potential benefits presented by AI.

The scope of possible uses for AI and machine learning in finance stretches across business functions and sectors. At present, the technology is being widely used in upgrading customer services, looking at new ways of segmenting clients in order to offer more bespoke products, as well as fraud prevention and loan assessment, and there are many more opportunities to expand it.

In customer services, banks now use AI-based chatbots in order to provide customer services and support on a 24/7 basis. The bots, as many of you have probably experienced, have been ‘taught’ to answer basic customer questions via an instant messenger interface. They are able to provide fast and relevant information and support to each user and drive tailored interactions, and the more sophisticated the chatbots become, it is anticipated that customer satisfaction will rise in tandem.

Client segmentation is an interesting one. It divides bank customers into groups based on common characteristics, such as demographics or behaviours. Here, AI can seek out patterns within client data quickly and on a huge scale, creating outputs that would otherwise be unachievable through manual means, or at least would take an exceedingly long time to process if humans were performing the task.

In loan assessment and fraud prevention, AI also uses its pattern recognition skills to search out irregular transactions that would otherwise go unnoticed by humans but may indicate the presence of fraud. In this respect, AI is a great tool for banks to assess loan risks, detect and prevent payments fraud and improve processes for anti-money laundering. For example, Mastercard’s Identity Check solution developed in Dublin, uses machine learning capabilities to verify more than 150 variables as part of the transaction process to help reduce fraud, thus giving merchants more confidence.

These examples are just the beginning of how AI can benefit finance, although it is important to consider that with increased use, it is imperative that controls on how AI is set up and applied are put in place to ensure systems are robust, fair and safe. For example, an AI tool that has not received the necessary guidance and proper training can output responses that lead to unknowingly biased decisions, with potentially damaging consequences.

It is essential that responsible governance of solutions plays an important role in the successful deployment of AI. It is only by keeping models tight to their tasks and free of bias and error that banks can be sure of the best results for all.

JP Morgan: The Big Bank in the Metaverse!

It is slightly ironic that the bank whose CEO made so many derisory remarks about cryptocurrencies should be the first to stake its place in the Metaverse. I am of course talking about America’s largest bank, JP Morgan and its CEO Jamie Dimon. Yet here we are: JP Morgan has opened a lounge called Onyx in Decentraland, a virtual world based on blockchain technology. By the way, Onyx lounge refers to the bank’s suite of permissioned Ethereum-based services.

At the same time as making this announcement, it released a paper titled Opportunities in the Metaverse, which it claims will help businesses “navigate the hype vs. reality.” It is certainly worth a read, and makes clear for many the differences between Web 2.0 and Web 3.0. If you ever need to explain the difference, the table on page 4 is the equivalent of exam pass notes and will save you hours of trying to come up with your own answers.

Clients are interested

Christine Moy, JPMorgan’s head of crypto and the metaverse told Coindesk, “”There is a lot of client interest to learn more about the metaverse. We put together our white paper to help clients cut through the noise and highlight what the current reality is, and what needs to be built next in technology, commercial infrastructure, privacy/identity and workforce, in order to maximize the full potential of our lives in the metaverse.”

As the JP Morgan paper points out, Decentraland is attracting big brand names. Samsung opened a ‘metaverse’’ version of its New York store there, and Barbados set up a metaverse embassy as well. Much of this activity is thanks to the acceleration of interest in non-fungible tokens (NFTs), as well what is described as “a breathless advance into the metaverse, a catch-all for immersive gaming, world-building and entertainment, fueled by integrated commerce applications.”


Metanomics, or the economics of the Metaverse, are firmly in JP Morgan’s sights. Its paper points out that the average price of a parcel of virtual land doubled in the latter half of 2021, jumping from $6,000 in June to $12,000 by December across the four main Web 3 metaverse sites: Decentraland, The Sandbox, Somnium Space and Cryptovoxels. It added, “In time, the virtual real estate market could start seeing services much like in the physical world, including credit, mortgages and rental agreements.” Furthermore, JPM believes that DeFi collateral management could well come into play, and that this could be done by decentralized autonomous organizations (DAO), rather than traditional finance companies.

Money to be made

JPM sees the Metaverse as a money maker. There will be entertainment, virtual fashion designers (Nike has shoes covered for now) and there is going to be a massive amount of advertising spend, with the bank citing a prediction that in-game ad spending is set to reach $18.41 billion by 2027.

Of course, as the title of the paper suggests, JPM wants to avoid the hype and be clear about the reality. So, it does have criticisms of the Metaverse in its current form. For example, it says the overall user experience and performance of avatars, as well as commercial infrastructure need improvement.

And why is JP Morgan well placed to offer advice about the Metaverse? The report makes the case, saying, “We believe the existing virtual gaming landscape (each virtual world with its own population, GDP, in-game currency and digital assets) has elements that parallel the existing global economy. This is where our long-standing core competencies in cross-border payments, foreign exchange, financial assets creation, trading and safekeeping, in addition to our at-scale consumer foothold, can play a major role in the metaverse.”

Crypto threatens financial stability says BoE banker

Jon Cunliffe, the Bank of England’s deputy governor for financial stability has recently given a speech where he tackled the question of whether or not, “the world of ‘crypto finance’ poses risks to financial stability.” Why and how does it do that?

Cunliffe pointed out that cryptoassets have grown by roughly 200% in 2021 ($2.3 tn), and from $16 billion just five years ago. The global financial system is worth $250 trillion, to give some context. He also mentioned that the sub-prime debt market was worth around $1.2 trillion in 2008, just before the financial crisis.

His point in using this comparison was that because the crypto industry is growing rapidly and beginning to connect to the traditional financial system, and there are leveraged players emerging in a mostly unregulated space, systemic risks, while limited now, could grow very quickly.

Referring back to 2008, he reminded his audience that in the case of the sub-prime market, “the knock-on effects of a price collapse in a relatively small market was amplified and reverberated through an un-resilient financial system causing huge and persistent economic damage.” We all remember the effects.

He called for financial stability regulators to take notice, to think very carefully about what could happen and whether they, or other regulatory authorities, needed to act. However, he cautioned against over-reaction. As he said, “We should not classify new approaches as ‘dangerous’ simply because they are different.”

Indeed, he said that innovation and technology, plus new players, could tackle longstanding frictions and inefficiencies and reduce barriers to entry, and that in the past they have been key to driving improvement and to increasing resilience in financial services.

Then, what started as a speech that may have sounded gloomy to the crypto markets, Cunliffe made an important and positive statement. He said, “Crypto technologies offer a prospect of radical improvements in financial services.” But he did add a caveat, “However, while the financial stability risks are still limited, their current applications are now a financial stability concern for a number of reasons.”

He then analysed the crypto market, breaking it down into unbacked cryptoassets used primarily as speculative investments and backed cryptoassets intended for use as a means of payment, pointing out that unbacked assets make up 95% of the market, and includes Bitcoin. His concern is that the main use of unbacked cryptoassets is for speculative investment and that fewer holders now say they see them as a gamble and more see them as an alternative or complement to mainstream investment. His greatest fear appears to be that while he doesn’t believe a collapse in the crypto retail investor sector would bring about instability, the large financial institutions with exposure to crypto are another matter, such as the many crypto hedge funds. He described one scenario: “For example, a severe fall in the value of cryptoassets could trigger margin calls on crypto positions forcing leveraged investors to find cash to meet them, leading to the sale of other assets and generating spillovers to other markets.”

Ultimately, Cunliffe called for faster action on regulating the market to manage risk, saying, “Although crypto finance operates in novel ways, well-designed standards and regulation could and should enable risks to be managed in the crypto world as they are managed in the world of traditional finance.”

While he sounds positive, as ever the demand is to bring crypto more in line with traditional finance, the very thing that caused the creation of crypto in the first place, due to ‘tradition’s’ failings.