Preserving deposits in the digital asset era

It’s happening now. The financial world is finally transforming, leaving behind the era of the electronic dollar. The age of ‘streaming money’ has arrived. Neo banks and crypto networks have been streaming money as data for well over a decade. Now, even the Federal Reserve has joined the ‘heretics’ with FedNow, the centrally planned and controlled real-time liquidity network. While this development may bring significant benefits to those still processing money in batch jobs, it also poses challenges, particularly for local and community financial institutions.

A few community-based financial leaders are actively and accurately assessing this moment in history. They are prepared to steward and store digital assets locally, following a responsible path that honors the credit union commitment to safeguard member assets. This modern twist on a century-old mission to preserve and protect the fruits of member labor, starts in your vault, but not the physical vault which just came to your mind, we’re referring to your digital asset vault, providing a trusted ‘safe deposit box’ for the ‘keys’ to the digital future. This conceptual and strategic shift appears simple at first take; it’s not and it holds profound implications for the future of money, commerce, and democratic access to capital.

Vaulting digital assets is the first, essential step that will allow your institution to recognize digital assets as deposits, extend them for use in transactions with local merchants, and eventually provide native exchange services. We realize there is a lot to unpack in that sentence, so let’s start the Fed’s recent launch of FedNow and what that could mean for your community financial institution.

The launch of FedNow is an admission by the giants of financial history– the Federal Reserve, Treasury, and Big 5 Banks – that the era of the electronic dollar is waning. In a world where global networks like Bitcoin, Ethereum, and XRP have proven the potential of distributed ledger technology, the financial industry can no longer afford to ignore the shift towards ‘streaming money.’ This paradigm shift is disrupting the meaning of relevance in international remittances, cross-border payments, and B2B settlements.

While FedNow promises real-time liquidity movement and improved payment efficiency, it also carries potential risks. FedNow will accelerate the adoption of digital assets, intensify fraud exposure, increase liquidity risks for local institutions, and stress strategic plans anchored in nostalgia for the age of the electronic dollar.

For local, democratically controlled, community financial institutions, digital assets and real-time payments raise a pressing question: How can local institutions combat deposit outflows and reclaim capital once it has been converted to ‘data’ and siphoned away through new channels such as FedNow, Robinhood, Bitcoin, and PayPal? Failure to address this question and create solutions for storing and utilizing digital capital will necessarily result in trusted, community credit unions losing ground to the financial giants. In essence, FedNow may become a ‘better, faster, cheaper’ straw for mega-banks, neo bank innovators, and new money networks to ‘drink your milkshake’ – all on the same day.

Amidst this changing landscape, St. Cloud Financial Credit Union in St. Cloud, Minnesota stands as a model of modern strategy. Recognizing the need to steward and store digital assets locally, St. Cloud is ensuring that their institution remains relevant and resilient. Their strategic approach serves as a shining example for other community financial institutions seeking to navigate the digital asset era.

To succeed in the era of FedNow and ‘streaming money,’ local financial institutions must move away from data silos and bolt-on vendor platforms and drive digital asset adoption natively from the core. That is precisely what St. Cloud is prepared to do. Credit union leaders who understand this point, and take action, will set their institutions up to survive and even thrive in the digital asset era.

St. Cloud Financial Credit Union’s proactive approach serves as an example of how institutions can adapt and thrive in this changing landscape. By developing comprehensive strategies to capture and maintain deposits—including digital assets—and by promoting financial literacy, and embracing digital transformation, local financial institutions can ensure their continued relevance and contribute to the prosperity of their communities.

As we navigate the FedNow era, the key to success lies in careful planning, innovation, and an unwavering commitment to the credit union mission of local (decentralized) financial stewardship. With curiosity, a healthy dose of courage, and a trusted partner to guide them, local institutions can secure their place in the future of digital assets and streaming money, ensuring that they do not forfeit control and allow themselves to become obsolete in this rapidly evolving financial landscape.

When you are ready to take action, reach out and share your thoughts and plans to stay relevant in an ever rapidly evolving financial landscape. DaLand has earned its reputation as THE Next Generation CUSO by our willingness to engage and collaborate with fellow thought leaders who serve this noble industry. We’re ready when you are!