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Banks and Crypto Companies are Co-Evolving. Customers Stand to Win.

In the natural world, when two species co-evolve, they develop traits to accommodate the other, and vice versa, in the spirit of mutual betterment. For instance, a clown fish is able to seek safety from predators in a sea anemone, while the sea anemone enjoys what amounts to a trip to the spa, courtesy of the clownfish.

There was a point in time where no one thought banks would ever touch crypto. However, we’re seeing a similar relationship unfold in the financial world. Deemed too volatile and inclined to risk, crypto was written off as a passing fad at best and a nefarious scheme at worst. Today, almost all the biggest banks have introduced crypto products to meet rising demand, and others are developing their own digital asset strategies to avoid getting left behind.

In turn, the crypto ecosystem has never been more accessible. Once thought to be too complicated and involved, these barriers to entry are falling as more services are retooled to accommodate the ecosystem. A curious market participant can now navigate their crypto journey through convenient on-/off-ramps made possible by the integration of legacy payment systems. In turn, diverse suites of crypto products and services allow new growth verticals for users to deploy their value and build robust digital asset portfolios. 

To quote analyst Linas Beliūnas, “crypto companies are becoming banks, while banks are becoming crypto companies,” and in many ways, this is a much needed development. And yet, it’s worth pausing to assess how we got here, and as a result, what other solutions may lie ahead.

Users want it all

In the wake of the COVID-19 pandemic, the payments world observed a growing demand for digital and contactless transactions among users at every stage of their customer journey. 

According to a recent study from McKinsey & Company, “Globally, between 2018 and 2021, the number of noncash retail payment transactions have increased at a compound annual growth rate of 13 percent; while in emerging markets, that figure is 25 percent.” 

This is an astonishing figure. Whether making quick, local purchases of goods and services, seeking loans or financial assistance, or interacting with savings, investing, or exchange instruments, demands for digital payments are on the rise, and accelerating. 

Due to the technological innovations emerging from the crypto ecosystem, we’re seeing an entirely new landscape for transacting beginning to take shape organically among different communities of market participants. As a result, traditional finance (TradFi) is responding by further integrating its products and services with growing lists of features associated with decentralized finance (DeFi).

Like the sea anemone and the clownfish, this restructured relationship between TradFi and DeFi is predicated on a mutual understanding of shared survival. Similar to how social media companies compete for attention, TradFi and DeFi companies are equally vying to become the de facto payment method for a growing cohort of market participants that have their eyes set on value beyond fiat currency.

With a growing number of digital assets accruing impressive market caps, users are increasingly looking for new solutions to deploy their on-chain value in the physical world. As such, we’re seeing companies on both sides of the TradFi/DeFi divide rushing to bridge the gap between these two modes of transacting, with the most integrated solutions reaping the lion’s share of the market.

Some maintenance required

For anyone paying attention to the crypto or DeFi space, it’s been anything but smooth sailing. However, with so much in flux, it’s important to remember that much of the infrastructure of these solutions is being built in real time. Therefore, companies should focus on partnerships and integration across the FinTech ecosystem to fast track more efficient forms of transacting. 

Returning to McKinsey, the same report goes on to extrapolate the role wallets will play in this evolving landscape. The report argues that “wallets are more embedded in customers’ daily lives when they are part of ecosystems,” which in turn “enables them to grow by extending into e-commerce, ride hailing, food delivery, messaging, travel, and other adjacent categories.”

The above suggests that success for future payments products will be predicated on their ability to interoperate with other goods and services with which their customers regularly engage. This is consistent with what we’ve observed across the compounding increase in demand for smart payment solutions, and the rise of digital assets and related technologies. But furthermore, it points to a solution that falls somewhere between what TradFi and DeFi promise.

While this emerging CeDeFi landscape has been struggling to be born, there’s no question that the trajectory of the industry is aimed at harnessing the best qualities of each: the efficiency and ubiquity of DeFi, with the trust and regulations of TradFi. However, until we’re able to decipher true innovation from pie-in-the-sky fancy, we’ll continue to see setbacks on our road to a more integrated future.

The path ahead

By continuing to work towards a future that marries these two worlds, market participants stand to see a more interconnected payments system. Not only will users be able to move seamlessly between goods and services, but such developments and inclusion could help more unbanked populations gain access to critical financial infrastructure. From borderless transactions, to savings and loan features, users will have it all right at their fingertips, and in some cases, for the very first time.

In addition to increased access, introducing regulatory guardrails associated with TradFi into the DeFi space will help ensure that users enjoy peace of mind along their crypto journey. Where there have been too many examples of companies and exchanges collapsing after failing to deliver on their promises, it is imperative that integrity stops taking a backseat to innovation.

As we continue to envision this middle ground, the relationship between clownfish and sea anemones is once again apt: where the anemone wants to function to the best of its ability, the clownfish wants protection from those who wish to do it harm. By ensuring the safety and health of the other, each is able to thrive. It’s time for TradFi and DeFi to accelerate toward a similar, mutually-beneficial relationship.




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Arina Dudko

Arina Dudko

Director, Head of Corporate Payment Solutions


Member since

19 Sep 2022



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