Your Bank Will Lose Customer Accounts Without a Digital Asset Strategy
By Steve Cocheo, Senior Executive Editor at The Financial Brand
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The legitimacy conferred on stablecoins by last year’s GENIUS Act marked a critical turning point for digital assets and the application of blockchain technology to traditional forms of finance, payments and investment. With the possible exception of the smallest, most local institutions, the banking industry can’t ignore the changes that the legislation and the market are ushering in.
So thinks Mark Nichols, principal and digital assets consulting leader at Ernst & Young. He believes that there will be increasing demand for the security, speed and round-the-clock availability of the blockchain for financial services.
Stablecoins are the driving force. Nichols believes that more and more assets will be tokenized — that is, turned into digital assets that move, financially, via the blockchain rather than traditional rails and channels. Many transactions will also need to move between blockchain ecosystems and the traditional commerce world, according to Nichols.
“Stablecoins are the glue between the two,” says Nichols.
“If you are transacting on-chain, you need something to make payments with. If you’re buying crypto, you need something to buy crypto with. If you are buying a tokenized U.S. Treasury security, you need something to pay for that tokenized Treasury with,” says Nichols. The same role will be played by tokenized deposits and, where they exist, central bank digital currencies, Nichols adds.
Strategy and focus will vary with each bank’s size, scope and specialties. But ignoring the movement, Nichols insists, puts banks at risk of losing customer accounts as both companies and consumers lean towards the new technologies.
Need to Know:
- Among businesses, EY’s own global research last fall found that 13% of large companies and financial institutions are already using stablecoins. And 54% of the sample not using the instrument expect to be doing so before the end of 2026.
- One out of ten corporate users responding to that survey indicate that they are already saving on banking fees by using the blockchain.
- Among consumers, millennials and Gen Zers have increasing interest in cryptocurrency in general, Nichols points out, with 65 million American adults now holding some form of crypto.
How Banks Can Gain a Leg Up as Stablecoins Advance
Fintechs and other nonfinancial companies have been in the limelight as stablecoins have gathered momentum in the wake of the GENIUS Act (the Guiding and Establishing National Innovation for U.S. Stablecoins Act). Debate continues over related legislation, the “CLARITY Act.” (Digital Asset Market Clarity Legislation for Asset Regulation, Innovation, and Trading Yields Act.)
Don’t wait on Washington. Nichols resists the school of thought that holds that the latter legislation is necessary for stablecoins to continue to move forward significantly. He says that federal financial regulators, including the banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission, can already do a great deal through their current powers and rulemaking authorities that will help blockchain technology to grow in use.
Banks can play a key role as blockchain moves forward.
“Banks are regulated entities, and they are trusted entities,” says Nichols. “Society broadly believes in the value that banks bring. Companies definitely understand them, and the services they can provide. They can be a central pillar in providing safe and sound access to on-chain finance.”
Read more: The War Over Crypto ‘Rewards’ is a Distraction. Get Ready for the Age of Stablecoins Now
To Maintain Their Role, Banks Must Master the Digital Asset Wallet
The crux of banks’ strategy here is to provide the wallets that companies and consumers will use for accessing credit, payments, investments, centralizing insurance coverages, identity and even health records in the blockchain ecosystem, according to Nichols. He says this means being the party that provides the blockchain/crypto equivalent of the bank account. (He uses the term “wallet” broadly, not just a feature on your phone.)
Maintain the account relationship and the bank maintains some degree of primacy and provides the bridge between parallel financial worlds. Lose it to other parties, and the bank begins to slide into irrelevance, says Nichols.
“In a world where there’s both digital native and traditional forms of assets, ensuring that there’s interoperability between the two is a big challenge,” Nichols explains — and a key differentiator.
A key focus: “We don’t want to fragment liquidity,” says Nichols, such that “if an asset is on-chain, it’s got one valuation, but if it’s not on-chain, it’s got a different evaluation. If it’s the same thing, it should have the same value, just in different technological forms.” He says this applies whether the asset is a Treasury security or a share in Apple stock.
“Let’s say I have a traditional U.S. Treasury in my brokerage account, and I want to use it to secure financing for something in the decentralized finance [blockchain] world,” says Nichols. “I should be able to move that across into on-chain activity seamlessly.” Such loans can be applied for, granted and funded nearly instantly, and delivered, he continues, using stablecoins.
Where can banks meet customers as this moves forward? Nichols gives two examples:
• A wealth management bank provides the ability to invest via the blockchain, and easily move proceeds back into dollars.
• A business-oriented bank needs to be able to help companies transact with stablecoins or other forms of digital payments. Treasury management services will increasingly require on-ramps for digital assets.
Customer experience will be key, according to Nichols. Moving in and out of blockchain transactions easily will be what customers will be looking for.
Business models will change. Nichols warns that many services, such as wire transfers, that currently bring in revenue will be replaced by equivalent but cheap or free blockchain alternatives. He sees this as an inevitable progression as technology and finance blend, much as the price of stock trades plummeted.
Read more:
What’s the Timeframe?
Nichols expects blockchain, tokenization and stablecoin technology will hit different parts of financial services at differing points — not one massive wave, but more a series of swells.
Right now, he says, things are ramping up on the investment side. One example: The New York Stock Exchange’s announcement that it is developing a blockchain process to enable 24/7 trading of tokenized securities.
Other aspects will come along more slowly, but for Nichols, that’s a relative term. He sees a three-to-five-year timeline before these trends begin to scale.
Parallelism will continue. Even by the end of the decade, when he expects the balance between traditional and blockchain to have shifted toward the latter, both ecosystems will co-exist.
“I don’t think we’ll be fully off traditional financial infrastructure,” he says. “A lot of activity will have moved, but a lot will remain where it is, as well.”
What can banks do? Larger institutions have already been wading into these technologies, but many smaller players have been watching the trends from the sidelines.
Nichols recommends seeking partnerships — it’s not necessary to invent your own processes. “And it doesn’t require crazy investments for everybody.”
A must for early adopters: He also recommends determining what needs to be done to make each institution’s core systems compatible with life in both worlds.
But the challenge can’t be ignored: “Every financial institution has to have a digital asset strategy.”
Read next: How to Blunt the Threat of Smart Contracts and Stablecoins to B2B Payments
