Framework Needed to Bank the Crypto ‘Unbankable’

The growing interest of mainstream businesses in digital assets is a turning point of sorts for this new asset class, signaling a new era of legitimacy for these digital currencies and the blockchain technology they ride.

Turning that interest into adoption at scale requires a “friendly alternative” to traditional banking through a simple, personal, well-informed, regulated service that can bank the crypto “unbankable,” BCB Group CEO Oliver von Landsberg-Sadie told Karen Webster in an interview.

It’s an insight that came to von Landsberg-Sadie and his co-founder the hard way.

BCB Group originally started as a company that brokered the buying and selling of bitcoin on behalf of high-net-worth individuals, families, offices and businesses. While servicing the market, the company noticed that the actual pain points of the crypto industry were settling the sales of bitcoin, rather than the liquidity of the cryptocurrency itself. The simple act of moving money from A to B was extremely difficult, as most correspondent banking networks outright rejected any crypto-tainted flows, noted von Landsberg-Sadie.

“The pain point, which we’ve gone to some depth to solve, is in that banking layer — very simple transaction banking services for what was previously the unbankable [crypto] market,” he explained.

What came next was the company’s plan to build the durable financial infrastructure for crypto-centric firms. BCB provides the rails to the financial exchange and crypto markets at scale for businesses that strive to build the future of money in the United Kingdom and European Union. Von Landsberg-Sadie said BCB is the leading provider of business accounts and trading services for the digital asset economy.

Read also: Finding Critical Mass for CFOs to Use — Not Just Buy — Crypto

Reaching the Potential, Despite the Regulatory Constraints

Von Landsberg-Sadie identified three obstacles to significant adoption of crypto as a currency, not just its use as a speculative asset for trading.

The first is lack of understanding on the part of the average consumer who is just beginning to learn the basics of crypto. It will take some time to fill the education gap, said von Landsberg-Sadie.

The second is its lack of ubiquity, or places to use it.

“Once that last mile has been penetrated, we’ll see a lot more adoption of crypto in the global merchant network,” he predicted. “I see a future in which the de-facto currency will be a completely cryptographic one, but we’ve got another decade or two before we get there.”

The third is regulatory intervention. Every country seems to be running this race at its own speed, he said. Switzerland has been on the front foot, whereas Finland has taken substantial steps to define and create a progressive, productive environment for the complete shift to cryptocurrency. The U.S., however, has been “all over the place,” he said, as businesses thriving in the crypto space are highly motivated, but the political framework wrestles with its technicalities.

See also: Rushed Crypto and Big Tech Regs From Congress ‘Will Be Horrible’

Brexit complicates things for the U.K. and Europe. U.K.-based businesses are now required to get counterpart licenses in the EU region.

“I’ve heard critics recently saying that Britain’s not a great place to start a crypto business, and I wholeheartedly disagree. If you work tightly with the regulator and ask permission first and not forgiveness later, you can create value as quickly, if not quicker than, other locations,” von Landsberg-Sadie said.

Read more: Bank of England’s Governor Says Cryptocurrencies Need Regulation

U.K. regulators have a particular focus on protecting consumers and avoiding consumer harm, crafting a level of scrutiny associated with licensing crypto-based businesses. In order to ensure the U.K. regulators that the unbankable are ready to be banked, BCB had to embed all of the classic know your customer (KYC) and anti-money laundering (AML) controls, as well as the transaction monitoring tools, into its platform. The massive traceability of the blockchain space offers transparency. It’s far easier to control money laundering or any kind of criminal activity, said von Landsberg-Sadie.

“I think it’s a game of whack-a-mole because every time there is a slowdown, the fact that everything is internet-based means it will find a way to survive,” he said. “Regulators will have to find a way to support business growth while doing their job of protecting consumers and keeping them efficient.”

Retaining VC Confidence

Von Landsberg-Sadie said he believes that blockchain technology has functional attributes that add value to businesses and people across the world. The evidence is massive investments that venture capitalists (VCs) have made in crypto-related ventures.

Over the last few years, technological development in crypto has shown green shoots in helping to solve some of the knottiest problems in the payments world, like sending money across borders faster and cheaper. These innovations and others like them keep VCs interested in the space.

“Bitcoin is no longer the proxy for the health of the market,” he said. “The level of VC funding is a huge signal of the growth of the market.”

The interoperability of rails and networks to achieve seamless global transactions is an ongoing concern of the payments industry that could potentially hamper the interest and trust of VCs. Cryptocurrency must be accepted — and globally accessible — in order to safeguard this growth.

Von Landsberg-Sadie explained that local payment rails facilitate the immediate real-time networks — like FPS in the U.K., ACH in the U.S., and other underlying payment rails at the base layer of the payments world — to be unified by an umbrella payment rail, like the SWIFT network. He observed an attempt to define the crypto equivalence as a global, consolidated payments network that bridges well into SWIFT and the local payment rails.

“The crypto network of networks would be the next global unifying payment model,” said von Landsberg-Sadie.

Assessing and Addressing the Pain Points

In order to formulate a crypto-based unifying payment model, it is vital to understand the challenges surrounding cryptocurrency, said von Landsberg-Sadie. Stablecoin has been a topic of concern for central bankers all over the world. When asked about navigating the landscape from a service infrastructure and opportunity viewpoint, he said he believes that stablecoins provide the best of both worlds, delivering the stability of currency price with the speed of cryptocurrencies.

A major criticism that comes up with bitcoin, for example, is pricing a cup of coffee. The price could change every second with the fluctuations of the value of bitcoin. However, in stablecoins, the cost of coffee is based on the blockchain backed by cash and cash equivalents, explained von Landsberg-Sadie.

“We are big supporters of stablecoins in general, and we support it directly on our banking platform.,” he said. “We are hoping to help that market grow directly, especially in non-USD currencies.”

On the other hand, BCB Group considers central bank digital currency (CBDC) a beast that is not everyone’s cup of tea in crypto land. CBDC is a digital version of the government-backed currencies, in a centralized and transparent model that offers immediate advantages to governments wanting that level of visibility and control, said von Landsberg-Sadie.

See also: Marching Toward Institutional Adoption of DeFi in Europe

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NEW PYMNTS DATA: DIGITAL BANKING STUDY – THE BREWING BATTLE FOR WHERE WE WILL BANK

About: Forty-seven percent of U.S. consumers are shying away from digital-only banks due to data security worries, despite significant interest in these services. In Digital Banking: The Brewing Battle For Where We Will Bank, PYMNTS surveyed over 2,200 consumers to reveal how digital-only banks can shore up privacy and security while offering convenient services to satisfy this unmet demand.

https://www.pymnts.com/digital-first-banking/2021/new-banking-infrastructure-needed-to-bank-todays-crypto-unbankables/