Why Square and SoFi’s Crypto Push Should Worry Community FIs
By Matt Doffing, Senior Editor at The Financial Brand
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Community institutions avoid cryptocurrency because they’re not in the business of predicting if novel innovations will be successful. If they studied their competitors’ strategies a bit more, they’d see they might be missing the plot.
If Square and SoFi are wrong about crypto, they will still take customers and displace payment revenue. If they are right, they could turn segments of the unsecured-lending market into collateralized ones.
Need to Know:
- Cryptocurrencies are causing deposit outflows and payment disruptions for community institutions, but those threats pale in comparison to the long-term game plans of Square and SoFi.
- Square and SoFi can win even if crypto does not fully “win” because Bitcoin and other cryptocurrencies are moving more activity onto their platforms.
- If Bitcoin holds value, businesses and consumers will prefer to borrow against it rather than sell it, giving Square and SoFi a path to collateralized lending that many community institutions are not prepared to match.
For small business lending, which is now a market dominated by unsecured or government-backed lending, a future in which crypto holds value will mean Square and SoFi become very efficient lenders when collateralizing with cryptocurrency.
Here’s why that’s likely to happen.
Heads They Win, Tails You Lose
Both Square and SoFi predict a bright future for digital currencies in their public relations statements, but it doesn’t actually matter what happens with crypto, so long as businesses and consumers want it enough to open accounts with the new banking providers.
If these fintechs help consumers and businesses into crypto positions and obtain new account growth, they add users, satisfy investors, and support higher valuations. They win whether cryptocurrencies rise, fall, or go the way of the dodo.
There is an analogy between cryptocurrencies and previous eras of euphoria in equities. Vanguard, Schwab, or any other platform, for example, do not need to predict the success of this or that stock. They want to be users’ primary interface for trading stocks. It’s not the job of executives at these asset management companies to determine whether customers will lose their shirts on GameStop stock; it is their job to identify markets to serve.
What this means:If customers maneuver equities well, they can do more trading on the Vanguard platform. If customers do just okay, it has a lock-in effect. If customers do poorly, they are still using the platform to invest. The same is true for banks and crypto-focused fintechs. Square and SoFi are applying the same binary logic to cryptocurrency.
Depending on the future of currency, that binary could shift the banking relationship heavily in their favor:
- If consumers and businesses accumulate value in their crypto holdings, incumbent institutions are witnessing the birth of a new method for collateralized lending that competes with them (more on that below).
- If crypto holdings just maintain value, then the assets sit on Square or SoFi.
- If the value of crypto declines, these new entrants still used crypto to gain a foothold in the banking relationship and they have much better technology.
These options set up a future in which Square and SoFi really win if crypto takes off, and they still win if crypto moderates or declines.
A Better Deal
There is a big “if” in all this, of course: Can Square and SoFi actually win account growth by helping consumers and small businesses obtain crypto positions? They are certainly willing to pay to make it happen, and they are seeing user growth come with it.
Square has enabled Bitcoin payments for more than 800,000 merchants, accumulating crypto volume on its platform while charging zero processing fees through 2027. Merchants do not need to understand Bitcoin to participate, nor do consumers. Even if we assume that Bitcoin was obtained through pure speculation, customers can spend it, even locally, and the number of businesses that can receive it is rising by leaps and bounds each month.
Square projected the scale of the opportunity in a recent announcement. Cryptocurrency payment users in the United States are expected “to grow by 82% between 2024 and 2026,” the company said.
Third-party data reflects that trajectory. The number of business locations accepting Bitcoin as payment rose from 7,091 in March 2026 to 8,486 in April, then to 9,142 in May, according to BTCMap. That is a gain of 2,051 locations in two months, representing roughly 29% growth in locations accepting Bitcoin from March to May.
Participating Square sellers are setting aside 12% of sales for automatic bitcoin conversion, suggesting that some merchants are treating the cryptocurrency less as a payment novelty and more as a savings vehicle.
Key data point: Some 89% of Square sellers say they plan to use Bitcoin as a long-term savings account.
Businesses that want to hold Bitcoin can receive it and convert it, or they can hold it and convert it on their own schedule, or they can keep it. It is all happening on Square’s platform.
Adding to the convenience factor is that Square is also using cost savings and payment protection to draw more Bitcoin volume onto its platform. In addition to zero processing fees on Bitcoin transactions, merchants face no chargebacks and receive immediate access to funds. Businesses are incentivized to accumulate Bitcoin or other digital currencies on Square.
SoFi is using the safety of its charter to create the same effect.
In November 2025, it became the first nationally chartered, FDIC-insured institution to offer crypto trading on a bank-grade platform. Unlike crypto exchanges operating outside the banking system, SoFi holds customer Bitcoin inside a regulated institution. In May, it also launched SoFiUSD, a dollar-backed stablecoin on Ethereum and Solana, becoming the first U.S. national bank to offer a stablecoin directly to retail customers on a public blockchain.
Proof point: After relaunching crypto trading in November 2025, SoFi attracted more than 63,000 users in the first 10 days. “Data shows 60% of SoFi members who own crypto would prefer to buy, sell, and hold their crypto with a licensed bank over their primary crypto exchange,” the company says. SoFi is accumulating consumer positions in Bitcoin or other digital currencies on its platform.
Crypto’s Emerging Role as Collateral
Most small businesses and consumers have little collateral. In a future where Bitcoin holds or increases in value, major fintechs’ push to broaden crypto transactions and holdings could dramatically change that picture.
When cryptocurrencies hold value, they can be used as collateral, not so different from stocks or equities pledged for securities-based loans or lines. “Square and SoFi could use the cryptocurrency holdings on their platforms for collateralized lending just as many banking institutions do now with a wide range of collateral,” says Andrew Begin, chief strategy officer at Galoy, which builds Bitcoin infrastructure for financial institutions.
Bitcoin-backed lending is structured around over-collateralization, typically at a 50% loan-to-value ratio, Begin says. The collateral is liquid and priced continuously, twenty-four hours a day. Lenders can monitor collateral value in real time, issue margin calls at any hour, and liquidate if thresholds are breached without waiting for market hours.
Current rates for Bitcoin-backed loans range from approximately 9% to 13%. Credit risk is lower than unsecured lending because the collateral can be watched and acted on continuously.
“There is such a large and largely open space for Bitcoin-backed finance,” Begin says. “The collateral control is strong. Even if collateral quality suffers, there are instruments and actions to control exposure.”
What this means: On other platforms, Bitcoin-backed lending would not be simple. Volatility, custody rules, margin-call mechanics, and borrower suitability all make the product more complex than traditional securities-backed lending. For Square merchants who have accumulated Bitcoin through payments, or for SoFi members who have held Bitcoin on the platform, it’s all managed there. Controlling the asset is very efficient.
Bottom Line: The Real Crypto Threat Is Lending
Community institutions are noting outflows of funds to digital asset platforms. As The Financial Brand recently reported, even those serving depositors’ digital asset transactions note that up to 5% of deposits are moving into the digital asset ecosystem.
These deposit movements and the potential for payment revenue disruption have motivated community institutions to adopt Bitcoin and other digital currencies. But it’s lending that should get the focus.
“If consumers or businesses bought Bitcoin and it sustains or increases in value, they will not want to sell it,” Begin explains. “More people would rather borrow against it, and that’s how it becomes collateral for a loan.”
