Over 33% of financial institutions have embedded some form of crypto functionality into their traditional banking services in 2024 alone. Cryptocurrencies, often discussed mainly for their volatility, hold a less sensational but equally vital role in promoting financial efficiency.
In this article, we explore 3 crypto use cases that can potentially open up new revenue streams for Traditional Finance.
1. Cross-border Transactions
Adopting crypto for cross-border transactions can significantly reduce costs and transaction times. Deloitte, in its 2024 banking outlook report, details how blockchain technology can cut costs in cross-border payments by up to 60% and reduce transaction times from days to mere seconds. Remittance service providers like Western Union or MoneyGram could leverage crypto to enhance their services, offering lower fees and faster settlements, thereby attracting a broader customer base and increasing transaction volumes.
Ripple’s XRP (its underlying distributed ledger technology) has significantly influenced how cross-border payments are conducted. Ripple Payments can bridge two currencies in just three seconds with a fixed FX rate, significantly reducing transaction times compared to traditional systems, which can take 3–5 days.
58% of global payments leaders consider faster payments the top value proposition for incorporating crypto into cross-border transactions. Ripple’s network covers over 70 global markets, providing extensive reach and accessibility.
2. Tokenization of Assets
Tokenization involves converting physical and intangible assets into digital tokens on a blockchain. It transforms traditional asset handling by allowing fractional ownership through digital tokens, making investments like real estate more accessible and liquid. In 2018, the St. Regis Aspen Resort in Colorado was tokenized into “Aspen Coins,” raising $18 million. This enabled investors to buy fractional stakes and trade them on digital platforms, increasing liquidity and lowering the investment threshold.
Such tokenization not only democratizes investment by reducing entry barriers but also speeds up transactions and broadens portfolio diversification. A report by Moore Global suggests that the global real estate market’s tokenization could reach $1.4 trillion in the next five years. This influx of liquidity and democratization of investment can drive significant growth in the market, enhancing portfolio diversification for investors and reducing barriers to entry for new market participants.
3. Smart Contracts for Loans and Credit
By utilizing smart contracts, traditional banks and financial institutions can automate loan issuance and repayments, reducing the need for intermediaries and minimizing default risks through predefined conditions.
The Bank of America reported that smart contracts could save the banking industry up to $12 billion annually by 2025 through reduced administrative costs and faster transaction settlements. These savings stem from lower administrative costs, reduced fraud, and enhanced compliance processes, ultimately leading to more competitive loan products and increased lending volumes.
Future Outlook of Crypto in TradFi
- DeFi Integration: Traditional financial institutions could integrate DeFi platforms to offer decentralized lending and borrowing services. This could democratize access to credit, particularly in regions where traditional banking services are underdeveloped. Visa is capitalizing on the crypto boom by introducing crypto-linked cards, enabling users to spend their digital assets as effortlessly as traditional cards. These cards’ innovative back-end integration with DeFi platforms can offer services like rewards programs and blockchain-based borrowing. We might see major banks creating interfaces that allow their customers to seamlessly access DeFi services without leaving the bank’s ecosystem.
- Crypto as Collateral: Banks may start accepting cryptocurrencies as collateral for loans. This could open up new avenues for individuals and businesses to leverage their digital assets without liquidating them, thus maintaining their investment positions while accessing liquidity.
Crypto in TradFi – Co-Evolving over Co-existing
No financial system, whether steeped in tradition or born from cutting-edge technology such as crypto and blockchain, can claim perfection. Practically, the optimal solution is a hybrid model that leverages the reliability and tested structures of traditional finance combined with the innovative, transparent mechanisms of crypto and blockchain.
The integration of cryptocurrencies in traditional banking could mirror the evolution of the Internet—from a specialized tool to a fundamental utility.
Recent regulatory advancements and crypto bull runs have underscored potential new integrations for traditional finance. With clearer regulations coming into place, like those seen with the FIT21 bill, traditional financial institutions now have a more solid foundation to safely explore these integrations. Going forward, we can see crypto and traditional finance not just coexisting but co-evolving. Smart contracts could automate routine operations, from loan approvals to KYC processes, reducing the latency and overhead associated with these services.
This integration is likely to pave the way for a more robust and equitable financial system. The challenge for regulators is to establish “tech-neutral” rules that preserve financial stability while fostering healthy and responsible innovation.
