How embedded finance could take crypto into the mainstream

Today, the total market capitalization of all cryptocurrencies totals $2.19 trillion, making the asset class the world’s 8th largest economy by gross domestic product. However, at the same time cryptocurrency remains strangely invisible from consumers’ day-to-day lives, remaining the preserve of speculators and bitcoin miners. However, this may be about to change.

One of the key barriers to integrating cryptocurrency into the mainstream has been technological – the majority of businesses have lacked the tools to engage with digital currencies. At Nium, as we launch our own crypto-as-a-service platform to help businesses to buy, sell, and hold the most popular digital assets, we examine how embedded finance is steering the future of cryptocurrency.

The untapped potential of cryptocurrency

While interest in alternative currencies is growing, it currently functions more as an investment opportunity for those in the know, rather than an everyday alternative to traditional forms of centralised currency. Key barriers to mainstream adoption include:

• Security: The volatility in price among cryptocurrencies and the prevalence of scams can make adoption uncertain for everyday consumers, worried they’ll lose out to either fraud or changes in value.
• Specialist knowledge: Despite becoming more mainstream, the world of cryptocurrency can still seem intimidating and esoteric, with new terms such as private keys, digital wallets and exchanges.
• Merchant integration: Most companies currently do not have the ability to process, store and convert cryptocurrency, limiting its real-world application. The main reasons are the relative lack of data security associated with cryptocurrency and a lack of knowledge among retailers.

For developers and merchants, these issues can become a circular barrier to adoption – there is less incentive to solve these issues as there isn’t mainstream demand, at the same time these are the same issues that prevent that demand. The first step to increasing mainstream adoption must be around improving access to cryptocurrency-based financial services in a way that:

• Creates a standard for simpler digital experiences.
• Improves real-world utility of cryptocurrency.
• Gives consumers more options for using digital currency.

Embedded finance can improve cryptocurrency adoption

For consumers to access cryptocurrency in their day to day lives, financial providers need to integrate it into their existing offerings. Currently, the vast majority of businesses rely on traditional lenders for their retail banking, however many of these institutions lack the technological capacity to accept, hold and transfer cryptocurrencies.

Embedded finance has the potential to change this, with third-party crypto-as-a-service platforms creating flexible solutions that can integrate with banks and retailers alike. By making cryptocurrency accessible to more financial and non-financial partners, consumers can start integrating it into their everyday financial lives, including:

• Crypto payments for goods and services.
• Crypto savings and current accounts.
• Crypto investing and transfers managed alongside other financial portfolio products.

These services have the potential to move cryptocurrency beyond an niche investment tool and unlock its real world benefits such as:

• Instant payments: Blockchain technology enables faster, more direct transactions, improving service levels and customer convenience.
• International business: Crypto-payments can enable instant global payments, without FX fees and bank intermediaries.
• Reduced fraud: Due to their encryption, cryptocurrencies are harder to steal and counterfeit, lowering the risk of fraud.

Competition in crypto services

One of the main challenges for incumbent financial providers will be catching up. Many traditional institutions have been slow to enter space due to the perceived risk and cost of implementing new systems. However, as digital currencies become more mainstream, legacy players will need to adapt to meet customer demand and strengthen their competitive position against more established crypto firms.

In creating the systems of the future, connectivity will be key. The crypto market is decentralised and flexible by design, which will need to be reflected in systems and technology. This will require extensive investment, and also time. As with most types of digital transformation, incumbents have the options to build or buy solutions to add the necessary functionality to their offerings.

Investing in a crypto future

Businesses that can use available technology to create new, more convenient and secure customer experiences have the potential to take the lead in cryptocurrency adoption. While companies wait for mainstream financial services providers to catch up, they can choose to build their own crypto-ready tech stack or partner with a plug-and-play solution that integrates with their existing systems.

Nium’s crypto-as-a-service platform was created with innovative businesses in mind to help them take full advantage of the cryptocurrency market. With our simple API, businesses can integrate popular crypto capabilities into their financial applications, including the ability to buy, sell, and hold the most popular digital assets, with future service elements allowing for stablecoin wallets, as well as crypto acceptance.

To find out how you can prepare your business for the future of decentralised finance, get in touch with our team today for a free crypto-consultation.