How Traditional Financial system Should Adopt to Crypto in 2020


Cryptocurrencies have been the talk of the town in Fintechville (the financial and technology sector) for quite some time. Although it’s not surprising, people have actually forgotten what’s happening in the traditional financial system. In the last couple of years, especially from 2018 to now in 2019, the news circulating in the industry has been about bitcoin that, bitcoin this, why doesn’t the price of XRP go up? Are cryptocurrencies safe as the next banking alternative? And so forth and so forth.

Unfortunately, as long as cryptocurrencies are projected to make an even greater impact in the global financial system, we are still haven’t reached full adoption of the technology. That means, in one way or the other, we still reliant on the old school banking system that we so much despise. Hence, it is needless to say that we should keep tabs on the system and be up to date on how it is coping in this new regime of cryptocurrencies.  

Features of the Traditional Financial system

Before we embark on how the various entities in the traditional financial system are adopting to crypto, let’s have a look at the basics and the mechanism the system uses to run its operations.

First, you should know that a financial system primarily entails trading – transfer of goods and services. Delving into the specifics, the financial system involves exchanging funds between investors, lenders, and borrowers.

The components of a financial system include;

  • Financial Institutions –where borrowers come to meet lenders and investors. In this section, we have:
  • Banks – Lend and store currencies and are mostly regulated by the government or rather monitored by the state’s official authorities
  • Non-banking institutions – They don’t have banking licences but can offer financial services like market brokerage, investment options, loan and insurance services.
  • Markets – where trades take place, and the prices adjust depending on the concept of supply and demand. Buyers and sellers meet here.

iii. Tradable assets – Most people would refer to these as money, which is true, but not clear enough. Basically, these are financial instruments which show proof of ownership.

  • Financial Services – Encompass all actions happening in the financial system. That is;
  • credit unions
  • banking services 
  • Provision of credit card 
  • Issuance of insurance 
  • stock brokerages
  • Offering investment funds

How the Traditional Financial Components are Adopting to Crypto

  1. Financial Institutions

Just recently, in the Q4 of 2019, a new bill was passed by the Bundestag in German that would allow financial institutions to virtually offer online banking and classic securities, including bonds and cryptocurrencies as from January 1st, 2020. Apparently, German banks, who previously could not offer digital assets to their customers, plan to utilize the growth of the industry with this proposed bill as a way to open up new business avenues for them. 

Also, the Royal Bank of Canada (RBC) revealed that the bank is looking into building a cryptocurrency trading platform to make it easier for its customers to buy and sell digital currencies. More, RBC is also planning to allow its clients to open bank accounts that would be able to hold crypto. The official report pointed out that top cryptocurrencies such as Bitcoin, Ethereum, Litecoin, among other virtual currencies will be available for trading in the new accounts. As if that’s not enough, the bank is also planning to necessitate all forms of crypto transfer of funds. 

2. Markets

This is the part where XRP has strongly shown its significance as far as cross-border transactions are concerned. In fact, whether it’s good publicity for the Ripple community or not, financial experts believe the technology behind XRP, xRapid (the fastest in the crypto-space), is disrupting the financial system. Ripple, who now boast of 200 customers, has partnered with the most prominent players in the financial sector more than any other crypto project in the industry. Partnerships with corporations and banks such as the International Monetary Fund (IMF), Euro Exim Bank and Malaysian Banking Group CIMB are just but to mention a few of financial institutions exploring the tech in Ripple to get ahead of their competitors in the global markets. Therefore, without getting to the point of monotony, financial institutions have been and are still exploring the capabilities of crypto technology to fasten the operations of the global markets. 

On the same rationale, retailers, who are also part of the service providers in the markets, have also started incorporating crypto assets as a mode of payment in their systems. The most notable players in this section include Starbucks and Travalla. 

Note: We have skipped tradable assets (financial instruments) in our analysis as one of the components of the traditional financial system adopting to crypto in 2020. That’s because the tradable assets are equivalent to cryptocurrencies which follow the same trading mechanism same as fiat currency. 

3. Financial Services 

Despite the promising future of cryptocurrencies, investors, especially institutional ones, have been reluctant to stake their funds in crypto due to its volatile nature. Point in case, institutions such as Bakkt and Binance Futures have introduced features that are inch-perfect liable for institutional investors. This is an approach that was merely utilized in the attempts to push crypto into mass adoption. 

Okay, before you start to wonder whether Bakkt and Binance Futures if they used to operate as traditional financial components (which they weren’t), you should know that these are examples that are forecasted to pioneer a long chain of financial institutions (mostly traditional) to follow suit. 

Speaking of which, before Bakkt and Binance Futures, back in 2018, Fidelity, one of the world’s financial services giants, made a long stride towards the crypto space by launching Fidelity Digital Asset Services. The firm planned to offer crypto trade and custody solutions for institutional investors.

Final Thoughts 

The scrutiny surrounding the exact time cryptocurrencies would disrupt the traditional financial system is no longer imminent. Looking at the recent crypto-news, you will see many government officials and heads of reputable financial institutions wary of the cryptocurrency revolution. But why wouldn’t they? Crypto technology is allowing untrusted parties to agree without the aid of a middleman (usually banks play this role). Well, it is no surprise that the proponents involved in the traditional financial system may not be needed anymore.

All in all, if the components in the traditional system were to remain viable and relevant in 2020, they will have to make some serious changes and adapt to the inevitable crypto decade starting in the coming year. 

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