Neobanks, Digital Assets, and Finance in 2021

Neobanks, Digital Assets, and Finance in 2021

By John Murray, Research Director

When asked to predict financial surprises in 2021, digital assets and payment systems come to the minds of various prominent market analysts. For example, investment strategist Nela Richardson at Edward Jones predicts that the Federal Reserve will launch a digital currency within twelve months. In her view, a digital currency would be a useful policy tool for the Fed, especially given its goal of connecting more closely with small- and mid-sized firms. It would dovetail well with the bank’s vision for the Main Street Lending Facility, part of the business credit program that was mandated by Congress in response to the Covid-19 pandemic.

A federally-endorsed digital currency would align well with the goals of various neobanks, financial institutions that operate without any traditional customer-facing brick-and-mortar offices or retail branch networks. Such organizations are typically better-placed than traditional banks to adapt to new business opportunities that are linked to digital assets. For example, firms like Kraken and SoFi already stand to benefit from the guidance of the US Office of the Comptroller of the Currency (OCC) concerning how crypto transfer and custody solutions can be provided to retail customers. Wyoming recently granted Kraken its first crypto-bank charter, and SoFi has successfully built upon its student loan and mortgage businesses to offer cryptocurrency investment services. So supporting a digital currency that was sanctioned by the Fed would most likely add further value to their financial service offerings.

Of course, a Federal Reserve decision to deploy digital currency would come as little surprise to observers of the People’s Bank of China, which began pilot testing the new e-RMB about six months ago. Those initial trials are being undertaken in several cities, where the currency can be used in different sectors of commerce, including public transit, food services, and retail stores. In Shezhen for example, the city authorities recently distributed approximately US$1.5M via a citizens’ lottery. Among the two million applicants, 50,000 winners each received 200 yuan (approximately US$30) via their digital Renminbi app, which can be spent in almost four thousand designated retail outlets.

Digital assets particularly appeal to younger generations of financial services customers, who have little need for cash transactions and see even less reason for writing paper checks. Forward-looking neobanks are finding ways to help them gain access to savings accounts, investments, and credit services that host both crypto and fiat currencies side by side. Kraken, for example, is partnering with Silvergate Bank in San Diego, California to offer traditional SWIFT and FedWire funds transfer options to its customers.

Another example is Upgrade, the neobank that markets affordable consumer loans and installment payment services nationwide. Upgrade, which is based in San Francisco, collaborates with several innovation-oriented community banks in Virginia and New Jersey, to support its credit offerings, a partnering arrangement that provides those small, brick-and-mortar banks with a much broader customer reach. All in all, it feels like any traditional banking behemoth that persists in approaching digital assets with any degree of trepidation in 2021 will soon find itself drifting rudderless in a sea of neobanks and their partner institutions.

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Binns, Mark. “Crypto Banks Are Going to Swallow Fiat Banks in 3 Years — or Even Less.” Cointelegraph, Cointelegraph, 10 Oct. 2020, .

“China Starts Major Trial of State-Run Digital Currency.” The Guardian, Guardian News and Media, 28 Apr. 2020, .

“Chinese City Giving Away 10m Yuan in Lottery Trial of Digital Currency.” The Guardian, Guardian News and Media, 12 Oct. 2020,

“Federal Reserve Board Announces It Is Expanding the Scope and Eligibility for the Main Street Lending Program.” Board of Governors of the Federal Reserve System, 30 Apr. 2020,

Zimmerman, Mike. “Nela Richardson Says Expect the Federal Reserve to Launch a Digital Currency.” Expect the Federal Reserve to Launch a Digital Currency, Helping Main Street | Barron’s, Barrons, 18 Sept. 2020,