650 U.S. banks will soon be able to offer bitcoin purchases to an estimated 24 million total customers. As part of the deal between enterprise payments giant NCR and digital-asset management firm NYDIG, community banks, including North Carolina-based First Citizens Bank, and credit unions, including Bay Federal Credit Union in California, will be able to offer their clients cryptocurrency trading through mobile applications built by the payments provider.
Instead of having to deal with the burdensome regulatory requirements related to actually holding the cryptocurrency for their customers, the financial institutions that opt to make the service available will rely on Nydig’s custody services.
The effort is the latest by Atlanta-based NCR to capitalize on demand it’s seeing from banks and credit unions tired of seeing cryptopurchases made from their accounts to outside exchanges. By providing these clients a way to buy bitcoin—and eventually spend it—within their existing accounts, the traditional financial institutions are part of a rising tide of those companies in direct competition with cryptocurrency exchanges.
“We’re firm believers in the benefits of crypto and the strategic application,” says NCR president of digital banking Douglas Brown. “And that’s true for our banking relationships, as evidenced by Nydig, and across retailers as well as restaurants and the like.”
Founded in 1884 as National Cash Register, NCR employs 34,000 people and does business ranging from digital banking services to ATMs and restaurant point-of-sale kiosks in 160 countries. From January 2020 to March 2020 the company’s stock tanked 62% to $13.43. Then, riding a similar tide as PayPal and many other financial technology service providers since the Covid-19 pandemic, NCR’s stock has jumped 238% since March 2020, when quarantine started, and is now trading at $45.44. NCR generated $6.2 billion revenue from non-cryptocurrency transactions last year.
In addition to its work with the financial sector, NCR is the largest provider of point-of-sale software to grocery and other retail stores globally, with a 45% market share, according to research firm RBR. In total, NCR serves 180,000 restaurants, retail chains and more, including Fifth Group Restaurants in Georgia and the Metropolitan at The 9 hotels in Ohio—all of which could eventually be opened to bitcoin payments if everything proceeds according to plan.
In May, the 135-year-old organization partnered with New York-based cryptopayment firm Flexa to let customers of Altoona, Pennsylvania-based convenience chain Sheetz’s 600 stores pay for gas and other goods with bitcoin, ether, litecoin, dogecoin and more. Now, Brown says “dozens” of NCR’s banking and credit union clients have come to his company complaining that their customers were using their savings to buy bitcoin and other cryptocurrencies.
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Instead of losing those assets to third-party cryptocurrency exchanges—or sending nasty notes to their clients saying they don’t condone the purchases—they decided to capture that value by providing the services on their own. “A lot of these banks have seen that one of the biggest outflows from their depositors is moving money from the bank to exchanges like Coinbase,” says Stone Ridge cofounder Yan Zhao, who joined Nydig as president in December 2020. “And so that’s part of why banks are so excited to have this capability for themselves and for their consumers.”
Phase one of the Nydig partnership will let NCR’s banking clients buy, sell and trade bitcoin and other cryptocurrencies from their mobile application. While the purchaser will feel like they’re working directly with the bank to make these purchases, on the back end, the actual assets will be custodied by Nydig. When a customer wants to buy bitcoin it is sourced from various regulated OTC desks and exchanges and sold at a slight markup based on the size of the trade and other factors. Nydig, in turn, receives a per-user per-month fee from the bank. “I think you’ll see cheaper transaction fees through the banks than what you have today in the marketplace,” says Nydig’s head of bank solutions, Patrick Sells. “But the banks do get to determine what they want that transaction fee to be.”
In addition to being able to charge for investment advice, Brown expects the banks will likely follow a similar playbook as PayPal. In the months after the payments giant started letting its customers buy and spend bitcoin, it saw a 100% increase in the rate those customers visited the app, increasing the opportunity to sell them other products. “Banking today is a daily or a couple of times a day activity for people, which is what we typically see,” says Brown. “Crypto gets to an hourly or subhourly level of deepening engagement.”
While U.S. banking regulator, the Office of the Comptroller of the Currency last year gave banks the right to custody the private keys that give customers access to cryptocurrency on behalf of their clients, NCR bank clients won’t likely need to worry about that at all. Nydig itself plans to hold the exact amount of assets its clients buy in an off-line, cold-wallet custody environment. “Every dollar of customer bitcoin is actually bitcoin that is held in custody, in trust, for the customers,” says Zhao.
Brown says that phase two of the implementation could see NCR eventually take custody of its own assets. It is also exploring noncryptocurrency applications of blockchain and other distributed ledger technologies to help it execute complicated transactions that involve many counterparties. In spite of years of false starts among other retailers who made crypto payments available—only to see few people willing to actually spend the assets—NCR’s chief technology officer, Tim Vanderham, is among a second wave of executives working with nearly 200,000 restaurants and other retail clients to help them accept payment in cryptocurrency, Brown says. Future projects are also expected to include making bitcoin purchases available via NCR’s 800,000 ATMs and more.
“We have broader ambition to do a multitude of things with crypto that will extend into our multivertical markets, retailers and restaurants,” says Brown. “And then other capabilities oriented around digital banking.”
Nydig was founded in 2017, as New York Digital Investment Group, a way for its sister company, $11 billion Stone Ridge Asset Management, to store its bitcoin and other cryptocurrency. Shortly after launching, the firm expanded to include basic services like trade execution, and by 2020 was offering crypto-accounting services, financing and derivatives support and new ways to analyze trade data. The application programming interface (API) that allows third parties to build into the stack of bitcoin tools didn’t go live until this year, triggering an onslaught of new business.
As of February 2021, Nydig was custodian of $4 billion in crypto assets, including at least 30,000 bitcoins, valued at $1 billion, owned by its parent company, Stone Ridge Holdings Group. Just a month later the assets under management had grown to more than $6 billion, and the firm has since quietly amassed banking infrastructure partnerships it estimates lets them offer bitcoin services to approximately 70% of U.S. banks.
According to a December 2020 survey of 3,898 U.S. consumers from Cornerstone Advisors, 60% of cryptocurrency owners would use their bank to invest in cryptocurrencies. But only about 2% of banks were very interested in doing so. Since then, that seems to have changed, with JPMorgan Chase & Co., Goldman Sachs and Morgan Stanley all taking tentative steps toward accepting bitcoin.
While skeptics of the incredibly volatile cryptocurrency—which reached an all-time high of $64,500 in April, only to drop by 50% in days—remain in full force, Nydig and its other banking partners, FIS, Fiserve, Q2 Holdings and Alkami Technology today took out a full-page ad in the Wall Street Journal in an effort to bring bitcoin to a more mainstream audience.“Those five partners,” says Sells, “are the piping of the global financial system. And so it’s nothing but excitement to think about bitcoin the asset, bitcoin the rails, and what in combination and collaboration we can do together.”