How Crypto Banks are Challenging Traditional Banks in the Middle East:
Crypto’s utility has received significant attention since Bitcoin’s launch. However, crypto banking is one of the most popular applications of cryptocurrencies. Crypto companies are increasingly expanding their operations and delving into the banking industry. Of course, this expansion trend will create tight competition in the banking industry, with traditional banks attempting to retain their customer base.
However, before delving into the competitive advantage of crypto banks, it is important to understand what crypto banking is.
What is Crypto Banking?
Crypto banking involves managing digital assets or currency. The firms that anchor such services could be crypto exchanges or general financial technology companies. Often, crypto banking services include holding crypto assets (on behalf of owners), providing investment opportunities, and even issuing crypto debit cards.
Over the years, crypto banks have emerged in many jurisdictions. Companies like Coinbase and Wirex have assumed their position as prominent crypto banks. In fact, Coinbase reportedly contemplated acquiring a US banking license in 2018. Like traditional banks, crypto banks are often centralized. However, decentralized exchanges could also qualify as crypto banks. In this case, the “bank” will not be controlled by a single entity, unlike traditional banks.
Crypto Banking in the Middle East: Competition for Traditional Banks
While crypto banking is not exactly prominent in the Middle East, many crypto firms provide services that can be likened to crypto services. For instance, many Middle Eastern crypto exchanges act as custodians of users’ assets. Countries like Bahrain also have banking regulations for the crypto industry. The Central Bank of Bahrain licenses prospective crypto firms and allows traditional banks to collaborate with crypto firms for payment, deposit, and withdrawal purposes.
However, whether a crypto firm is licensed or not, it is likely to provide banking-related services to users. Many of these services are increasingly preferred by customers in the Middle East. As a result, crypto banks have started to increase their competitive advantage in the region.
The root causes of users’ preference for crypto banks as opposed to traditional banks are numerous. First, crypto banks provide faster transaction speed. Thus, remittances are faster, and users generally have access to higher-quality services. Additionally, there is a general distrust of the traditional banking system. This distrust has led many users to adopt crypto banks as an alternative.
Lastly, crypto banks are more accessible. One of the major shortcomings of traditional banks is their inability to reduce financial inclusion and increase accessibility. However, the situation is completely different with crypto banks. Many of these banks only require internet connection to provide highly sophisticated banking services. Thus, it is unsurprising that users are opting for the more accessible option (in this case, crypto banks).
As more crypto companies assume bank status, there will be tighter competition for traditional banks to compete against. Traditional banks can prepare for this outcome by integrating crypto into their systems.