Virtual assets, including cryptocurrencies, non-fungible tokens (NFTs) and central bank digital currencies (CBDCs) have entered the mainstream.

The financial ecosystem is widening, with the acceptance of crypto for goods and services becoming a more common payment method offered by merchants to customers via their payment service providers.

Things are changing quickly, and with the emergence of Web 3.0, there is the potential for a rapid evolution of a new, decentralised approach to payments infrastructure.

‘Crypto Trends in Business and Beyond’, a recent report by Ripple, identified a number of key trends that demonstrates this.

The key findings of the report highlight that while there is an appetite for wide-scale adoption of blockchain technologies and digital assets, including cryptocurrencies and CBDCs, regulators in some jurisdictions are barriers to this. As blockchain-related technologies mature, consumers are increasingly understanding, and owning, virtual assets such as crypto and NFTs.

Blockchain technology is providing a way to optimise and enhance payments. Many countries are in the process of launching CBDCs, adding a new type of cryptocurrency, which is issued and regulated by a nation’s central bank or monetary authority, offering an alternative to fiat currencies.

The report then takes a deep dive into three core areas.

Tokenize, manage, move

‘Tokenize’ explains the different types of tokens (AKA digital or virtual assets) that are managed on a blockchain, and highlights the main benefits – transparency and privacy, combined with agility, and decentralised security.

This section of the report predicts significant growth in tokenisation, something backed by WEF data which suggests 10% of the world’s GDP will be tokenised by 2027.

The numerous use cases for tokens are outlined, particularly for CBDCs.

Ripple outlined five potential use cases for CBDCs, asking financial institutions about their level of interest in each of them. These use cases included:

• Intrabank/branch transfers
• Interbank payments
• Customer payments
• Providing CBDCs to consumers
• Providing CBDCs to businesses

Overall, interest was evenly distributed across all potential use cases.

However, when this data was drilled down to look at interest in these use cases across different types of financial institutions, the results were somewhat surprising. The number of digital banking/FinTechs who expressed interest in each use case was significantly lower than the number expressing interest from other institution types, which included retail and commercial banks, money transmitters or payment providers, payment aggregators, and investment bankers/brokers.

Ripple believes that there may be a good explanation for this. Digital banks and FinTechs are already innovators that have developed more modern infrastructure than legacy financial institutions, and therefore can already run more efficiently without new token types such as CBDCs.

Another reason is the fear of disruption to their business models which have focused on improving rails on top of existing infrastructure, which could become less profitable due to CBDCs or crypto, making them cynical about alternatives that could present advantages to their competitors.

Despite some market players expressing less interest in CBDCs, the potential is clear. 30% of respondents to the survey believe that CBDCs will have a huge impact on finance within the next five years, believing that they will lead to the acceleration of digital finance, offer greater access to credit for consumers and businesses, and increase financial inclusion for SMEs and consumers alike.

The ‘Manage’ section of the report goes on to look at business use cases for digital assets.

Crypto is becoming more widely acknowledged and accepted in the world of digital payments. Major organisations, including Microsoft and PayPal, are accepting cryptocurrencies as forms of payment, while others are paying employee salaries in crypto.

But financial institutions are not just interested in utilising crypto as an alternative payment method. 76% of financial institutions expect to use crypto in the next three years, and although the primary reason was to add cryptocurrencies to their portfolio to facilitate payments, using the value of crypto as a hedge, or to bridge currency was also cited as reasons crypto could be used.

However, several barriers to adoption were highlighted. Reasons included fraud and scams, a lack of regulation and volatility as the three biggest challenges.

When it came to sourcing crypto, 65% of consumers said that they would buy crypto from their bank, demonstrating that traditional financial institutions could leverage their position as trusted entities to join the crypto market.

The final section of the report, ‘Move’, focuses on the benefits of using tokens on a blockchain to move value, specifically payments, with improved speed, lower friction, and greater transparency.

Almost 70% of financial institutions are interested in utilising blockchain technology for payments. Additionally, when it came to token types, approximately 70% of financial institutions expressed an interest in cryptocurrencies, stablecoins, and CBDCs, citing improved data security and quality, growth opportunities/expansion, real-time settlement, reduced fraud, new revenue channels and 24/7/365 payments availability as the main reasons.

The benefits are clear for merchants, too. 56% of global consumers stated that they are more likely to transact with a merchant who can accept crypto as a payment method. While seen as less important to respondents in Europe and North America, there is a huge opportunity for merchants who are willing to provide an alternative means of moving money between them, and their customers. This also presents a huge opportunity for Payments businesses and Banks.

Banking Circle can offer access to the Web3 market without the need for significant investment in infrastructure by providing its clients with asset-backed stablecoins, giving Banks and Payments businesses the ability to facilitate payment acceptance, fiat exchange and settlement of digital assets outside traditional bank rails.

To find out more about our stablecoin solution, get in touch.