Small Banks Looking to Capitalize on Cryptocurrency Customers

Despite rising to prominence in recent years, cryptocurrency still carries a stigma that big banks just can't seem to shake.

In the absence of major institutional attention, the market for banking crypto has opened up to a small band of industry-forward, local lenders.

Based in San Diego, Silvergate Bank is a local three-branch lender that has opened up to over 250 crypto-related companies in the past year - a move that nearly doubled their assets under management from $978 million to $1.7 billion USD. By enabling crypto-related businesses to use their banking services, small branches have been able to increase deposits and fee income without having to build new locations or increase interest rates.

In other words, cryptocurrency has been an innovative solution to outdated banking practices and allowed risk-tolerant banks to grow at a rapid pace.

Metropolitan Bank Holding Corp. has more than tripled the income it received from transaction fees since becoming a premier lender for cryptocurrency businesses nationwide in 2017.The Risks of Crypto Banking.

Although cryptocurrency is a viable outlet for small banks to gain a competitive advantage, the unstable markets and uncertain regulatory framework make the new digital asset class a risky endeavor for institutions at any level.

By taking on the risks of dealing in crypto-related businesses, small banks have been able to attract clients that otherwise would have sought out larger institutions for their greater reach and additional benefits.

Through this collective exclusion from Wall Street giants, companies working with small banks seem to have greater trust with those processing and withholding their company funds.

As cryptocurrency regulation continues to mature as a future payment option, the once hesitant banking industry will likely follow to meet market demand.

Some of the largest banks in the world, such as the Bank of Tokyo-Mitsubishi, are already following suit, even going as far as issuing their own native cryptocurrencies in an attempt to instill mass-adoption and resolve financial inefficiencies.