The volatility of cryptocurrencies and their existence in what’s often a grey area of regulatory compliance make businesses operating in this sector an unattractive target for traditional financial institutions.
Today, there remains a broad spectrum of positions that regulators and financial service providers hold when it comes to working with crypto businesses. But proponents of the technology argue that crypto is not only here to stay, but it will one day become a vital part of the overall payments and financial services ecosystem — so it’s essential that these companies receive adequate banking services today to prepare for the future.
As traditional banks decide whether to dip their toes into the industry or not, the gap has created an opportunity for FinTechs to step in. One of them is Bankera, which recently launched an alternative to the traditional bank account for companies operating in the cryptocurrency arena.
In a recent interview with PYMNTS, Bankera Co-founder Vytautas Karalevičius offered insight into exactly why crypto businesses are so difficult to bank. Yet doing so will be key, he said, to supporting the overall evolution of the global payments industry.
For years, crypto firms have struggled to convince financial institutions (FIs) that they’re bankable thanks to the high-risk reputation of the industry.
“This is fair,” explained Karalevičius, “because cryptocurrency is actually a medium of exchange technology, which possesses similar risks as any payment or financial business.”
With regulations surrounding digital currencies still in flux from one market to the next, compliance remains one of the most challenging obstacles for both crypto firms and banking providers to overcome. As Karalevičius noted, this is often because the heart of the cryptocurrency industry is often at odds with the nuances of regulation.
“As in the current regulatory environment, these businesses have two sides requiring completely different mindsets,” he said. “On one hand, these businesses are completely technology-driven, and everything is binary and concrete, while on the other hand, compliance is a legal field which is rarely binary — black of white — and requires good interpretation skills.”
He pointed to anti-money laundering (AML) regulations as another example of how the nature of compliance can sometimes conflict with the crypto world. Bitcoin was created as a way to bypass the middleman of financial transactions — which, traditionally, is the bank itself. AML regulations, however, were developed with the current legacy infrastructure of the banking space and its “chains of third parties” in mind.
For crypto firms and their banking providers, this presents the challenge of ensuring professionals understand both ends of this spectrum.
FIs themselves struggle with fully understanding how this industry operates, too. Because the cryptocurrency space remains in its relative infancy, and because it has been marred with a high volume of negative press over its years, banks may not be able to understand whether a business is truly bankable or not.
“It’s not only about understanding the compliance procedures of the business itself,” said Karalevičius, “but also understanding if the business model is rational, or just another get-rich-quick scheme.”
Contributing To The Payments Ecosystem
While the debate continues as to whether FIs should or should not step into the world of crypto, either by banking businesses in the sector or developing their own digital currency technologies, Karalevičius said he is confident that cryptocurrencies will gradually become a standard part of the overall global payments infrastructure.
Indeed, many of the most pertinent drivers of payments innovation today were quick to evolve in the world of cryptocurrency.
Speed, for instance, is an essential component of crypto transactions, making it difficult for many of these businesses to find a banking provider that can address that need.
“The main advantage of cryptocurrencies is nearly-instant settlement,” he said. “So, the fiat transaction leg should also be fast, or nearly instant. Hence, crypto businesses are looking for partners able to offer local pay-in and pay-out options that keep with the demand for speed.”
Those providers are increasingly able to do so as faster payment innovations proliferate. According to Karalevičius, cryptocurrency’s platform of speed, transparency and affordability are driving other innovations in the payments ecosystem, including in the fiat arena on traditional payment rails. And as cross-border transactions grow more difficult as traditional correspondent banking relationships dissipate, the demand for alternative methods of moving funds will grow.
For Bankera’s account solution, it was important to include support not only for crypto transactions, but also for other fiat currencies that use traditional networks like SWIFT and SEPA. With the FinTech’s Business Accounts offering now live, support for an array of currencies and networks will be key to facilitating B2B payments quickly, particularly across borders, because businesses today need access to all areas of the payments ecosystem.
“Crypto is just another payment channel, like SEPA, SWIFT or payment cards,” noted Karalevičius, adding that by offering support for both, crypto businesses can also operate in the crypto and traditional finance markets. “I believe that crypto and financial services will merge into one, maybe not in the coming years, but in the coming decade.”