Crypto-friendly Financial Institutions
Cryptocurrency has the potential to disrupt the traditional financial institutions. As such, many banks are not fond of crypto. Some see it as competition, while others have concerns about the legitimacy of cryptocurrency. There are multiple reasons that many banks choose to stay away from cryptocurrency, at least for now. This makes the few financial institutions that are crypto-friendly stand out even more.
If you want to invest your fiat or crypto in a crypto-friendly financial institution, then consider the following options.
Why Banks Are Hesitant to Adopt Crypto
As mentioned, every bank has its reasons for hesitating to adopt cryptocurrency. Taking a closer look at those reasons will give you a better idea of why so few financial institutions are crypto-friendly. It will also help you visualize the obstacles that crypto-friendly banks have had to overcome.
Some banks do not want to become crypto-friendly because they see digital currencies as competition. These banks know that factors like short transactions times, reduced fees, and the lack of intermediaries appeal to clients. They may be concerned that if they offer cryptocurrency-related services, clients will move away from their traditional products that offer the bank higher revenue options.
Less Than Perfect Reputation
Some banks have concerns about the reputation of digital currencies. They point to the fact that many associate crypto with illegal activities, such as money laundering. Major financial institutions do not want to be associated with these types of activities, even if the connection is not there. As such, they will avoid cryptocurrencies.
Lack of Regulation
Other financial institutions have concerns about the lack of regulation for cryptocurrency. This means that there is the potential for a future regulatory framework to require significant changes to their business operations. The lack of control can also scare away some clients, making some banks wonder whether offering crypto would be profitable.
Difficulties with KYC
There are also banks that are hesitant to adopt cryptocurrencies due to the difficulties associated with KYC. Many people who use crypto do so due to the limited KYC requirements compared to fiat banks. Banks will not want to offer crypto services with low levels of KYC, and some crypto enthusiasts may be hesitant to come on board.
Challenges Making a Profit
For many financial institutions, the lack of crypto-friendliness comes down to the inability to make a substantial profit. Cryptocurrencies are known for low or non-existent fees, but those fees are where most financial institutions make their money. As such, financial institutions must come up with new ways to make a profit when they offer cryptocurrencies.
The factor of volatility also plays a role. Compared to fiat, cryptocurrencies are incredibly volatile and unpredictable. This makes it harder to invest in cryptocurrencies and to predict their future. Banks tend not to feel comfortable offering products that they cannot count on, and many think that crypto falls into this category.
Smaller Banks Are More Crypto-friendly
Although there are exceptions, it is more common to find a crypto-friendly financial institution that is small instead of a major company. These smaller banks have more to lose if crypto does take over the industry. They also have more potential for growth. Since the crypto sector has grown quickly, these smaller and mid-size banks feel that it is worth exploring it.
Ally Bank is U.S.-based and online-only without any branches. As such, it operates 24/7. The bank makes it simple to integrate accounts with Coinbase, so clients can use their cards to purchase cryptocurrency. While this is a step ahead of most other financial institutions, you should note that Ally Bank does charge a small fee for using cards to buy crypto.
The European Bankera works to connect traditional banking with blockchain technology. This process comes via Spectrocoin that offers brokerage services for the bank’s clients. There are also exchange services for tokens and crypto.
Barclays is among the U.K.’s largest banks, and it operates as an investment bank in other countries as well. The bank has been in operation for more than 300 years, so it is very well-established. It also recently applied for two separate patents within the United States. Those patents are part of work towards developing a way for customers to pay using digital currencies and for blockchain information processing. Barclays is one of many financial institutions to partner with Coinbase to make trading easier.
Change Bank, created in Singapore, offers trading services in the European Union. The company is still in the very early stages, but it should receive its European Banking License by 2020. It should also have created its credit and debit cards and fiat wallets by then. So far, the bank already has an in-app crypto wallet with an integrated trading platform and no commissions.
Fidor Bank has an online model and is based in Munich, Germany. It has a strong relationship with Bitcoin.de, a German Bitcoin exchange. This relationship means that clients can purchase Bitcoin directly via the bank. Fidor Bank also helps businesses and startups get support for funding activities and projects.
Goldman Sachs is an important name in the world of financial institutions, and it is one of the few banks of its size to incorporate cryptocurrency offerings. The company has a Bitcoin trading desk, to which it has been bringing customers gradually. This makes Goldman Sachs the first Wall Street bank to create a cryptocurrency trading platform.
LHV is one of the top crypto-friendly banks in Estonia, and it is very well-established. This bank partners with Coinfloor to stay at the forefront of blockchain technology. The bank also has a new application, Cuber Wallet. This wallet is a blockchain system allowing customers to send digital Euro to others.
Based in Zurich, Switzerland, Maerki Baumann is an older bank with a long history of working with fiat. It recently turned to cryptocurrency due to the increase in demand from clients. According to Stephan Zwahlen, the CEO of the company, the move to offer crypto-related services brought in 400 interested people almost immediately. Many of those people were those that the company had tried and failed to attract over the past years.
Monaize is a French Mobile Bank that operates online. The goal of this bank is to connect crypto users with banking in the European Union. The bank argues that these benefits are particularly strong for small businesses and freelancers. Monaize also stands out with its incredibly fast KYC procedure that is quicker than most others. The bank plans to extend into other crypto payment solutions in addition to cryptocurrency wallets and insurance.
National Bank of Canada
This is one of the rare Canadian banks that has a strong relationship with crypto. The bank stands out for letting customers buy Bitcoin with their cards. While this is better than nothing, the system has strong regulations and is heavily monitored.
Quontic is based in New York in the United States and is another crypto-friendly bank. It operates within its strictly-regulated jurisdiction, providing services to companies in the cryptocurrency industry.
Silvergate Bank has its headquarters in San Diego and launched its cryptocurrency business six years ago. This financial institution has already made a name for itself as one of the rare United States-based banks that offer services for the digital asset industry and does so with ease. Silvergate Bank serves over 500 entities that work with cryptocurrencies.
The company also made a filing with the U.S. Securities and Exchange Commission to outline its plans to offer loans that use cryptocurrency as collateral. The Silvergate Exchange Network (SEN) would let exchange clients hold the cryptocurrency collateral and apply SEN for initial funding from the bank’s balance sheet. If there is ever a collateral deficiency, the bank would immediately sell the crypto collateral via its exchange client. It would then use its SEN to bring the funds back into the balance sheet.
Located in the United States, Simple Bank is based in Oregon. The company has been supporting cryptocurrencies for a while and works with multiple exchanges. It is also one of the rare banks that has all of its deposits covered by FDIC insurance. That is a significant advantage, especially for crypto businesses and traders of a more cautious nature. Just keep in mind that to use Simple Bank, you must be a U.S. resident.
USAA is a bank that focuses on serving military members as well as their families. It also works with Coinbase, allowing for simple integration. The bank also shows its support for cryptocurrency markets in other ways. This includes participating in the Series C funding round from Coinbase. That move made USAA the first U.S. bank that invested in a cryptocurrency exchange.
WEG Bank is a German financial institution that made a partnership deal with Tokenpay Swiss AG in the summer of 2018. This deal involved Tokenpay Swiss AG, which is a cryptocurrency payment provider, acquiring a stake of 9.9-percent in the bank. At the time, there were already plans to increase this share in the future. In spring of 2019, Nimiq, who provides browser-based payment solutions, purchased another 9.9-percent interest in WEG bank.
Following the second of these crypto partnerships, WEG Bank and Nimiq began working on Nimiq Oasis, a crypto-fiat product.
Since the partnerships, WEG Bank has begun advertising itself as a bank to connect digital currencies with traditional banking. The bank is in the process of applying for a custody and securities trading license in Germany and already has a license for custody and crypto trading in Estonia. The Estonia license is for WEG Blocklink OÜ, the sister company that will service WEG Bank AG.
This licensing in Estonia is important for WEG Bank since Estonia has created a favorable climate towards crypto. However, there are some reports that Tallinn authorities have begun tightening regulations. Those regulations mean that locally registered entities have to have headquarters within the jurisdiction, and foreign companies must have an office in the country.
Wirex offers a cryptocurrency wallet service and is also a bank. The wallet makes it easy to buy and sell cryptocurrencies. This company is under the regulation of the Financial Conduct Authority as it is London-based. All customers of Wirex get debit cards with British sort codes and bank account numbers. They also get 0.5-percent back in the form of Bitcoin on in-store purchases. Wirex also offers a crypto platform for converting fiat to crypto and vice versa. This feature helps clients with in-store or online purchases that take advantage of instantaneous conversions.
Other Banks Worth Mentioning
Europe, private and corporate clients alike can work with mobile and online banks, including Bankera, Bitwala, Revolut, and Wirex. The previously mentioned Maerki Baumann works with other Swiss banks for handling cryptocurrencies and other assets. Other involved Swiss banks include Falcon and Vontobel.
How Fintechs Help
The various startups in the fintech industry have also helped expand the adoption of cryptocurrency among financial institutions. These startups have worked to develop useful platforms, such as those allowing smartphones to become crypto exchanges or bank offices. This helps challenge the idea of what financial institutions are.
Additionally, fintechs are open to experimentation to meet the needs of crypto users and businesses. They are willing to take risks and have the passion and team necessary to develop the platforms that guide the integration of crypto into banks.
The Future of Crypto-friendly Financial Institutions
Experts believe that the number of crypto-friendly financial institutions will grow in the future. Additionally, those banks that are crypto-friendly should find it easier to operate in the future. This will come from the moves towards a clear framework in various countries. Switzerland, Gibraltar, Malta, and Estonia already offer a friendly regulatory environment for cryptocurrencies.
While we wait for cryptocurrency to spread and for more banks to support it, you can choose to place your funds with one of the many crypto-friendly banks that are already in existence.