Cryptocurrencies undoubtedly bring new business opportunities. The expanding industry around digital assets and its customers need more and more services that traditional sectors can provide. Banking is often a bottleneck in the crypto space as most traditional institutions are still reluctant to get their feet wet. Smaller banks, however, are more willing to occupy this niche and reap the rewards.
Aiming for a Reward That Justifies the Effort
Navigating the regulatory maze, in the midst of which most Crypto Banks operate these days, is not easy. Organizations from other industries which work with crypto firms have to deal with the same obstacles. It’s often hard to do business and make a profit. But the current situation also creates opportunities, for there’s a margin to be made in this kind of environment. And it’s usually the small, young and hungry businesses that accept the challenge, hoping that the reward will justify the risks and efforts.
Most big banks have been shying away from the cryptosphere, be it because of the regulatory uncertainty, the volatile nature of the market, or maybe they just see a threat to their good old ways of banking. But small-size financial institutions and representatives of the nascent fintech industry cannot afford to be so shy. In the fast-moving cryptoconomy, every opportunity the growing sector offers is worth exploring and exploiting.
The case of the German WEG Bank illustrates this very well and shows that banks and crypto companies can cooperate in a mutually beneficial way. In the summer of 2018, as part of a partnership deal, the crypto payment provider Tokenpay Swiss AG acquired a 9.9% stake in the bank with plans to increase its share in the future. And this spring, Nimiq, a provider of browser-based payment solutions, also bought 9.9% in WEG Bank. The two now work on a crypto-fiat product called Nimiq Oasis.
A Bridge Between Two Financial Worlds / Bank and Crypto Banks
WEG Bank is now promoting itself as an institution that bridges the gap between traditional banking and digital currencies. According to an announcement posted on Twitter, it has recently secured “full access to a crypto trading and custody license in Estonia.” The bank noted that it’s also applying for a securities trading and custody license in Germany. The licensed Estonian vehicle, WEG Bank later clarified, is WEG
Estonia has been a leading force in Europe when it comes to creating a favorable business climate for crypto companies. However, it’s been reported that authorities in Tallinn have started tightening some of the rules applicable to the sector. The new regulations oblige locally registered entities to keep their headquarters in the jurisdiction, while foreign companies are required to maintain an office in the Baltic country.
Fiat Products Backed With Crypto Assets
Having crypto companies among stakeholders is not a mandatory prerequisite to being a crypto-friendly financial institution. Since the launch of its crypto business six years ago, San Diego-headquartered Silvergate Bank has established itself as one of the few banks in the United States that is readily providing services to the digital asset industry. It serves more than 500 entities dealing with cryptocurrencies.
Silvergate has announced its intentions to offer loans collateralized with cryptocurrency. In a filing with the U.S. Securities and Exchange Commission, the lender describes its Silvergate Exchange Network (SEN) and explains that “an exchange client could hold the digital currency collateral, we could use the SEN to initially fund the loan from our balance sheet, and in the event of a collateral deficiency, we could immediately sell the digital currency collateral through our exchange client and use the SEN to bring the resulting funds back to our balance sheet.” Further elaborating, the bank points out:
We believe there may be attractive opportunities to provide digital currency borrowing facilities to deepen our high quality customer relationships and further enhance our interest income.
Other crypto-friendly banks operating in the United States include New York-based Quontic, which is now providing services to crypto companies in its strictly regulated jurisdiction. Elsewhere in the U.S., businesses from the industry can manage their finances with the help of institutions like Simple Bank and Ally Bank. In Europe, corporate and private clients can rely on the banking services provided by a new generation of online and mobile banks such as Revolut, Wirex, Bankera, and Bitwala.
Fintech startups have immensely helped the expansion of crypto banking. Their platforms turn your smartphone into a bank office or a crypto exchange, challenging the traditional understanding of what banks should look like. They are willing to experiment and cater to the needs of crypto businesses and users. In the face of this competition, large financial institutions have yet to integrate digital assets into their business models and strategies.
Banks working with cryptocurrencies and companies specializing in crypto-related banking are likely to see more regulatory clarity in the future with the adoption of comprehensive national legal frameworks. Along with Estonia, Malta, Gibraltar, and Switzerland form a group of nations where crypto businesses can operate in a friendly regulatory environment. For example, financial authorities in Switzerland recently licensed two companies, SEBA Crypto AG and Sygnum AG, to serve as banking institutions for the country’s growing crypto industry.
And under increasing pressure, old Swiss banks like Zurich-based Maerki Baumann are turning towards the crypto market. “We suddenly had 400 people wanting to talk with us. And they were exactly the kind of people we had been struggling to access for 10 years with traditional private banking offerings,” CEO Stephan Zwahlen told Swissinfo last month. “We found that they were typically between 30 to 40 years old, very well educated and with an entrepreneurial mindset,” he added, speaking about how his bank found an alternative revenue source in the Swiss crypto sector.
Do you expect to see large banks offering services to clients dealing with cryptocurrency in the future? Tell us in the comments section below.
🔥JOIN THECONRISE.COM'S MONTHLY $1000 GIVEAWAY AND FEEL VALUED AS A READER! DON'T MISS OUT! 🔥