NAFCU & DIGITAL ASSETS “Digital assets are a key focus for NAFCU because whatever our members decide is best for their organization, we want to have the same authority as banks,” said NAFCU’s Senior Counsel for Research and Policy Andrew Morris. “We want a level playing field that includes consistent oversight and consumer protections.” NAFCU’s Digital Assets Working Group meets quarterly to hear news, updates and discussion of current issues related to digital assets. Recent topics have covered interagency statements issued by the federal banking regulators regarding management of crypto-related risks, such as fraud, asset volatility and potential contagion risk within the sector. The group has also helped shape NAFCU’s principles for the creation of an appropriate digital asset regulatory framework. NAFCU has also responded to inquiries issued by federal regulators regarding the potential creation of a central bank digital currency (CBDC)—a type of digital asset that would exist as a liability of the Federal Reserve. “NAFCU has long regarded government involvement in banking as a slippery slope fraught with risk and a publicly issued CBDC would likely create tension with traditional depository institutions,” said Morris. “While cryptocurrencies and other privately issued digital assets have established themselves as either investment or payment vehicles within the financial sector, a CBDC lacks the same clear value proposition. While proponents have claimed that a CBDC can promote financial inclusion and improve payment efficiency—those goals can be achieved more reliably by credit unions.” Looking ahead, NAFCU and the working group will be eyeing legislation aimed at clarifying digital asset authorities, said Morris. “The association will also work to educate lawmakers and regulators about the costs and risks of a CBDC, and how existing financial sector infrastructure can offer a superior alternative for achieving the same goals.” One credit union is looking at member data to drive the digital strategy, educate frontline employees and communicate with members, said Kapur. “They review member account statements to identify who is moving funds from the credit union to thirdparty wallets such as Cash App,” he said. Frontline employees as well as members are educated about the best ways to pay digitally—methods that are secure, easy-to-use and vetted by the credit union. “Then employees can encourage the use of credit union fintech partners or the credit union’s own payment app.” Credit unions can enhance their value to members and improve loyalty by offering to review members’ various payment apps and provide suggestions on how to simplify and improve the process by reducing the number of disparate digital wallets. “Loyalty drives behavior,” said Kapur. This means members think of the credit union first when making a financial decision about checking, savings, loans or other products, he said. The challenges to a digital strategy that includes payment or wallet options include the siloed approach to products in most financial institutions, said Kapur. This approach means separate “wallets” for digital banking, credit card transactions, debit card transactions, person-to-person transfers and bill payments—all of which require multiple technology investments, he explained. “Developing a successful strategy requires integration of all payment options into a simple, convenient app, portal or website for members.” Kapur recommended that the organization begin by identifying one person to champion and lead the effort to unify payment processes. “The team will include representatives from the retail, lending, loyalty, operations and IT departments,” he said. It is this team that can identify and address what is needed to move forward, he added. “The solution for one credit union was a payment hub that gave members one place to visit for a variety of transactions. The hub serves as a platform to connect the different digital services offered by the institution.” While fintech partnerships can be financially positive and reduce capital investment in IT infrastructure, choosing the right partner can be a challenge, admitted Kapur. “There are too many new, shiny objects to review,” he said. “You must have an overall strategy in place first so you can make sure the solutions you review help you meet your goals. If the solution does not help you unify payment processes, it won’t provide value to the organization and its members.” As credit unions wait for regulatory guidance related to cryptocurrency, it is important to develop an overall digital strategy, said Kapur. “Digital money movement in all forms will continue to grow in importance. Credit unions must plan to offer a safe, effective, valuable way for members to move their funds or they will become irrelevant.” Reference 1. 1. Franck, T. One in five adults has invested in, traded or used cryptocurrency, NBC News poll shows. CNBC. Mar 31, 2022. www. cnbc.com/2022/03/31/cryptocurrency-news-21percent-of-adultshave-traded-or-used-crypto-nbc-poll-shows.html 20 THE NAFCU JOURNAL September–October 2023
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