Cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) are quickly becoming popular trading commodities among millennials and Gen Z. In fact, 94% of crypto buyers are from these two groups.
One way financial institutions can attract and appeal to this audience is to provide fiat on/off-ramps to their customers. A fiat on-ramp makes it possible for customers to exchange their fiat currency for cryptocurrency easily.
If you plan on taking this route, you should consider partnering with a fiat-to-crypto exchange. This guide will explain how financial institutions can offer fiat-to-crypto exchange services
Understanding Fiat-to-Crypto Exchanges
A fiat-to-crypto exchange is a platform that allows customers to exchange traditional currencies (USD, GBP, EUR) into cryptocurrencies. These platforms act as intermediaries to facilitate fiat and crypto exchanges.
Fiat-to-crypto exchanges are extremely important in the Web3 ecosystem. They are integral to helping people seamlessly convert their cryptocurrencies into cash and vice versa. Nonetheless, many consumers are finding it difficult to access these services because some popular platforms have difficulty maintaining adequate fiat on/off-ramps.
For example, Crypto.com recently faced difficulty offering fiat-to-crypto services because of the collapse of its crypto-friendly banking partners. Because they are simply intermediaries, fiat-to-crypto exchanges need banking partners to process transactions. Otherwise, they’ll have issues maintaining liquidity and giving customers the conversion services they’re looking for.
Fortunately, financial institutions can join the crypto market by offering these services to their customers by partnering with fiat-to-crypto exchanges. This can ensure that more people can easily convert their crypto into the currency of their choice.
How Does a Fiat-to-Crypto Exchange Work?
If you want to venture into offering fiat-to-crypto services, here is everything you need to know about how they function.
1. Choosing an Exchange Platform
To begin, a customer needs to select a reputable fiat-to-crypto exchange. When choosing an exchange, here are some important factors to consider:
- Security: The best fiat-to-crypto exchanges are encrypted with cutting-edge security protocols such as Know Your Customer (KYC), two-factor authentication (2FA), and Anti-Money Laundering (AML).
- Supported Currencies: Crypto exchanges offering a wide range of currencies can best appeal to domestic and international audiences.
- Fees: There are transaction fees associated with converting fiat currency to crypto. These deposit and withdrawal fees can vary depending on the platform you choose.
High-quality fiat-to-crypto exchanges will maintain a rigid security infrastructure while offering multiple currencies at the most competitive trading fees.
2. Creating an Account and Verification
When you choose a fiat-to-crypto exchange, the next step is creating an account. Signing up for an account is very similar to creating a bank account. You’ll need to undergo KYC procedures to verify your identity and finish the account creation process. The exchange will typically request a customer’s ID, personal information (name, address, and date of birth), and social security number to complete the process.
3. Depositing Fiat Money
After creating an account, it’s time to deposit fiat currency into your wallet. The exact deposit process will depend on the exchange you choose.
Typically, many fiat exchanges offer an instant transfer feature and a wide array of payment methods for fiat deposits. This allows customers to immediately deposit money into their accounts via bank transfer. To access this feature, you’ll need to link your account account through payment processing technology like Plaid.
4. Buying Cryptocurrency
When a customer has money in their wallet, they’re able to buy whatever cryptocurrency they want. To buy a cryptocurrency, a customer needs to place an order.
This process involves:
- Choosing a crypto-to-fiat trading pair
- Selecting the “buy” option for the transaction
- Customizing the size of the order
- Confirming the order
When the order is complete, the proceeds will be available for withdrawal.
5. Storing Cryptocurrency
There are two options for storing the cryptocurrencies you buy. You can either use an exchange’s native wallet or your own crypto wallet.
If you choose the former option, it’ll be easier to withdraw your crypto assets since the wallet is automatically supported by the exchange. On the other hand, using a personal crypto wallet may be more secure since it doesn’t rely on the exchange’s server.
This means if the crypto exchange experiences downtime or gets hacked, your digital assets won’t be affected. Still, you’ll need to ensure your crypto exchange has an integration for the third-party wallet address you plan on using.
6. Withdrawing and Selling
Once you have access to a cryptocurrency, you can sell it for fiat currency on the exchange. Typically, users will transfer money from their bank into the exchange, and then engage in buying and selling on the exchange.
For example, crypto traders can sell their BTC for a specific US dollar amount to make a profit. However, when it comes to selling crypto, exchanges will need to have adequate liquidity to process the transaction without affecting its market price.
Why Financial Institutions Should Embrace Crypto Exchanges
Traditional financial institutions don’t have to be at odds with crypto exchanges. In fact, they can work together and build a mutually beneficial relationship. Here are a few reasons why financial institutions should consider entering this space.
New Revenue Streams
Incorporating fiat-to-crypto services is a great way to add new revenue streams to your business. Financial institutions can earn profits from exchange rates, custody services, and other crypto-related offerings.
There are more than 420 million cryptocurrency owners across the world. As a result, there is a massive market need for innovative fiat-to-crypto services. If you can provide secure, low-fee crypto services that support multiple currencies, driving additional revenue shouldn’t be an issue.
Competitive Advantage
Many traditional financial institutions and banks have been very careful about adopting crypto services, believing it could be harmful to their businesses. As such, entering the crypto space early can attract new customers and establish a competitive edge.
Nonetheless, providing a fiat-to-crypto service isn’t a magic bullet. There are certain risks involved in starting this venture. Two common risks include dealing with liquidity issues and navigating the uncertainty of the crypto market.
Increased Customer Engagement
Financial institutions that offer fiat-to-crypto services can engage tech-savvy customers, younger demographics, and investors seeking diversification.
Offering this kind of service allows financial institutions to deepen relationships with their audiences by giving them convenient access to the crypto market. Achieving success with this venture means understanding the precise needs of your target audience and tailoring your trading experience in that direction.
Keeping Pace With Technological Advancements
Engaging with cryptocurrencies enables financial institutions to gain expertise in using blockchain technology. This technology has potential applications far beyond digital currencies, including in areas like smart contracts, supply chain management, and secure transactions.
Staying current with technological advancements in the crypto space is key to keeping your business relevant as the financial sector continues to shift toward creating a cashless society.
Bridging Traditional Banking With Crypto Exchanges
Venturing into the crypto space doesn’t require you to build custom technology and software. You can partner with an existing crypto exchange to streamline the process of fiat-to-crypto conversion.
Originally, financial institutions treated crypto businesses as competitors. Nowadays, both organizations can work together to provide a user-friendly crypto service that’s currently in high demand.
Strategies for Financial Institutions To Offer Fiat-to-Crypto Exchange Services
If you’re ready to provide fiat-to-crypto exchange services, here are some strategies to help you get started.
Partner With Existing Cryptocurrency Exchanges
Again, partnering with existing cryptocurrency exchanges expedites the process of delivering fiat-to-crypto services. As the banking partner, you can provide liquidity to the over-the-counter (OTC) crypto exchange to better facilitate the conversion process.
In return, you can use their technology to easily integrate fiat-to-crypto services into your organization’s arsenal.
Develop In-House Cryptocurrency Trading Platforms
If you want an a la carte solution, you can choose to develop your own cryptocurrency trading platform. This way, your customers can buy, sell, and trade cryptocurrencies directly on your custom platform.
While there is a tremendous risk and initial investment involved with developing a custom crypto trading platform, you can add more revenue streams to your business and eliminate the middle-man altogether.
Offer Banking Services to Crypto Businesses
Financial institutions can attract crypto businesses by offering tailored banking services, such as account management and financial advisory. Offering these services to crypto businesses can help build important partnerships and stay up to date on modern financial technology.
For example, you can offer banking services to crypto businesses and receive vital exposure to evolving blockchain technology. This exposure can help you implement blockchain into your business model and better serve your customers.
Use Blockchain for Compliance and Security
Blockchain is a decentralized and public ledger that can’t be altered from the outside. It’s the backbone of cryptocurrency. Leveraging blockchain technology can enhance the compliance and security frameworks of financial institutions offering crypto services. With blockchain technology, banks can achieve faster reporting, automated compliance, and tamper-proof transaction records.
Navigate the Fiat-to-Crypto Revolution Safely and Securely With AlphaPoint
Overall, offering fiat-to-crypto can help financial institutions break into the crypto market and serve a growing market of investors. The good news is that banks can partner with existing crypto exchanges to deliver fiat-to-crypto services without building in-house software.
Still, finding the best crypto exchange partner can be challenging, especially if you’re managing strict deadlines. This is where AlphaPoint comes in.
AlphaPoint provides white-label crypto services you can plug seamlessly into your tech stack. To see how our crypto solutions can benefit your business, request a demo today.
