The cryptocurrency tide is changing.

In the first quarter of 2021 alone, daily Bitcoin transactions reached the 400,000 mark, China launched the second trial of its digital currency and the global market size has now been predicted to reach $1087 million by 2026. 

Cryptocurrencies are gaining popularity. How do fintech companies benefit from allowing their customers to trade crypto? Let’s take a look.

Why the demand for cryptocurrency investments is growing

Demand is rising due to three main reasons: savings rates are low, crypto is promising to solve important problems and throughout the pandemic investors had disposable income they were looking to invest.

Everyday investors are tired of 0.01% bank interest rates and stagnant government bonds. So where do they turn to now? Cryptocurrencies. 

And it’s not just retail investors — JPMorgan now lets investors allocate 1% of their portfolio to Bitcoin, and Blackrock is opening up two funds that will be investing in Bitcoin futures. Cryptocurrencies are seeing a 43% year on year adoption, and according to a recent survey we did with Focal Data, there has been a surge in buying cryptocurrency in the last 6 months. 

Over half of those who have ever bought cryptocurrency have done so in the last 6 months (55%). Of those who are tempted to buy cryptocurrency, the main reason is that it seems like a better way to make their money work for them than alternative financial assets (e.g. stocks, gold) or financial products (e.g. savings accounts) (43%)

Before 2020, people could argue that crypto was not an important investment class. But with institutional investors adding Bitcoin to their holdings and countries creating their own digital currencies, it’s safe to say that crypto is on the rise in 2021. 

Why neobanks should meet that demand

Neobanks and fintech companies are in a great position to deliver on that demand. We’re already seeing fintech companies such as Revolut, Square and Paypal offering cryptocurrency investment on their app. Here are three main reasons why: 

• Add a new revenue stream

It’s a well known fact that many fintech companies struggle to turn a profit - especially European fintechs where interchange is low.

A cryptocurrency exchange offers fintechs and neobanks an opportunity to expand to a new revenue line. Fintech companies can either package it into a premium product and charge a monthly fee to users, or earn money on the spread between buying and selling various cryptocurrencies. 

• Attract new customers

The number of crypto curious people in the world is growing — as we mentioned above, the number is 43% year on year adoption. Many retail investors are wanting to get started with cryptocurrency investing and are likely to pick a fintech company that meets their needs. If that fintech company offers crypto trading, it’s more likely that’ll be the one they pick.

Offering a crypto exchange is a way to cater to a new segment of people, while also keeping a competitive advantage and standing out from the rapidly saturated neobank market.

• Retain existing customers

Just like with new customers, an efficient crypto exchange will keep your current customers happy. Customers won’t have to download and open a separate app to use cryptocurrencies - now they can do it directly from their preferred fintech.

According to a Mizuho Securities report, 20% of Paypal users have traded Bitcoin on the Paypal platform. And since the crypto trading platform launched, Paypal reported their customers logged in twice as much into their app. Adding a crypto exchange is an excellent way to increase customer retention.

• Aligning the brand with the future

Cryptocurrencies are here to stay. As both an asset and a currency, they are likely to play a large part in the future of money management, monetary policy and cross border transactions.

Fintech companies and neobanks are already labelling themselves as the future of banking, the democratisation of finance and the best way to meet customer needs. Therefore, it only makes sense to follow through on that branding by following through with crypto and decentralised finance. 

How to implement a cryptocurrency exchange

Currently, there only a few ways to implement a cryptocurrency exchange as a fintech:

1. Build the capability in-house (time and resource intensive)

2. Partner with a provider (speeds up the process and gets you quicker to market)