Crypto start-ups hit record levels of investment. Why can’t banking provide the services they need?

With growing consumer and corporate acceptance and plenty of interest from investors, cryptocurrencies seem to have it all. What’s missing are the banking platforms to go mainstream.

At what point can a currency be considered ‘mainstream’? Is it when you can use the currency to pay for a hotel? To buy a burger or a pizza or a car or a house? When major payment platforms such as Paypal are happy to accept it? Or when a country adopts it as legal tender? According to any of those measures, cryptocurrencies deserve a place alongside mainstream forms of cash. And from a theoretical point of view, crypto offers several advantages over traditional fiat currencies. 

And then there’s the metaverse - online 3D environments in which people can play games, watch concerts, buy virtual real estate, even earn money. Interest in the metaverse has soared after Facebook announced in October that it is changing its name to Meta and is building its own platform. Big companies and startups alike are racing to build digital worlds, broadly based on blockchain technology - tailor made environments for cryptocurrencies to meet any given transaction need in the new Web 3.0 realm. Some industry commentators believe this is a $1 trillion annual revenue opportunity.

Cryptocurrencies are global, secure and allow transactions to be made cheaply and instantly. And they are rapidly gaining mass-market acceptance. As of August 2021, an estimated 76 million people had bitcoin wallets, up 43% on the year before, and the cryptocurrency was seeing 270,000 transactions a day. 

Beyond tech enthusiasts and early adopters, cryptocurrencies are being embraced by a growing cadre of fans to receive payments, pay or get paid for services, and support IT development. Overall, an estimated 106 million people use cryptocurrencies, making crypto a more widely used form of exchange than the pound sterling, the South African rand or the Korean Republic won. 

And it’s not just consumers that are growing to love cryptocurrencies. 

In the first nine months of 2021, cryptocurrency start-ups raised $15 billion in venture capital, five times the amount pulled in by the crypto industry in the whole of 2020. The third quarter of 2021 saw the birth of a record 12 crypto start-ups valued at more than $1 billion apiece. These companies are promoting new forms of financial service, ranging from digital ownership of non-fungible tokens or incentives for online content and gaming to crypto exchanges and decentralised finance based on emerging blockchain-based Web 3.0 concepts. 

However, there is one thing that is preventing cryptocurrencies from transitioning beyond being stores of value or speculative assets into a standardised medium of exchange. The financial services industry, usually quick to embrace new money making opportunities, is still lagging in its ability to deal with crypto. 

This makes it hard for companies to integrate cryptocurrencies into their treasury, payment and investment operations in the same way they can with standard currencies. There are several potential reasons for this lack of access to traditional financial services and payment processing facilities. Some banks may deem crypto to be overly risky, for example, despite their immense popularity and decade-plus track record. It's also disruptive with some financial service providers viewing digital assets as a threat to their own (risk-averse) business models.

Others may be seeking greater regulatory clarity, although hesitancy here is arguably misplaced since the direction of travel is clear. Cryptocurrency and digital asset service providers will need to conform to the same standards and regulations as apply in traditional finance, with rigorous AML and KYC processes. 

Whatever the motivation, the fact is that banks’ unwillingness to support the crypto market is leading to some unusual situations. For instance, financial services rooted in cryptocurrencies  are increasingly only provided at extreme ends of the customer spectrum: that is, for small-scale retail customers or multimillion dollar institutional clients. This lack of vision does the banking sector no favours and leaves a huge segment of the market unaddressed. 

As noted above, venture capital houses are pouring billions into crypto companies and a growing number of mid-market businesses are joining the cryptocurrency fray. This money needs an adequate banking infrastructure to be mobilised. Banks that do not provide the infrastructure will not be able to participate in the growth of the sector and risk being left out of its evolution as more nimble financial players look to deliver services targeted at the crypto industry. But what should these services look like?

One key requirement is to combine traditional finance and digital asset treasury, payments and investments on a single platform, so customers can cover all their needs from just one account. Until now, using cryptocurrency financial services has required technical expertise and in-depth knowledge of the space. This needs to change so that crypto services are more accessible and non-experts can enjoy the benefits of digital asset-based financial services.

At the same time, financial services powered by cryptocurrencies need to address three overriding values:

• Accessibility, so customers do not experience barriers to entry during processes such as onboarding. 

• Transparency, to ensure all business processes and relationships can be fully trusted. 

• Advocacy, helping digital assets to gain wider acceptance in global financial markets. 

The advantages of cryptocurrencies are undeniable. Equally, there is a growing demand for the financial services sector to offer the products and services that support seamless switching between fiat and cryptocurrencies across an array of treasury, payment and investment functions.  2022 will no doubt see this demand being met much in the same way that neo-banks rushed in to service a digital savvy, younger demographic.

About BVNK

Headquartered in London, BVNK is a digital asset financial service platform which serves fast-growth businesses and partners across Europe and beyond. BVNK harnesses the power of cryptocurrencies to create new ways for customers to achieve their treasury and investment management goals. Its core products are the BVNK Business Account, BVNK Yield, where clients can put their capital to work and earn interest, and BVNK Markets for executing large transactions. BVNK’s day-to-day operations are governed by three overriding principles: a commitment to transparency; a focus on delivering accessible solutions; and a readiness to advocate for the role of digital assets in global financial systems.