Crypto banking firm BCB Group is on-track to offer instant USD settlements by the end of 2023, significantly expanding the fiat-to-crypto payment rails used by millions of consumers around the world when buying digital assets.
The London-based Authorised Payment Institution (API) – whose clients include leading crypto exchanges Bitstamp, Crypto.com and Kraken – will add US dollar capabilities to the BCB Liquidity Interchange Network Consortium (BLINC), its multi-currency real-time payments network, “within the next one to two quarters”, according to outgoing deputy chief executive Noah Sharp.
That will allow the Financial Conduct Authority (FCA)-licensed firm to act as a conduit for dollars moving between the banking system and the cryptosphere, likely creating the largest on-ramp and off-ramp in the world for people with USD bank accounts.
“We’ve already tested the BLINC network on dollars with some pilot exchanges,” Sharp told me in an interview in Zurich last month, speaking days before announcing his departure from the company. “We’ve already configured the technology to work for US dollars, and we’re just waiting to enable it on that first banking partner that we’ve signed up. Initially it’ll be on the one bank, and then we’ll add the second and the third.”
BLINC is effectively a pool of traditional bank accounts controlled by BCB in 12 different currencies around the world. By holding funds 1:1 on behalf of its clients and by using payment reference numbers to identify individual users, BLINC streamlines the process through which consumers top up and withdraw from their crypto exchanges. Its role as a clearing house for fiat-to-crypto transfers has also been embraced by others in the industry – crypto market makers, lenders, funds, brokers and traders – all of whom face hurdles when pushing money through the banking system.
The planned addition of USD to BCB’s payment rails comes amid increasingly bullish sentiment in crypto markets, with bitcoin trading just above $29,000 at the time of writing – an increase of 75% since the beginning of the year.
It also follows the closure of two competing crypto-friendly settlement networks: Silvergate’s SEN and Signature Bank’s Signet.
Those platforms had been responsible for the bulk of USD flows into and out of the cryptosphere until March, when their respective banks ceased operations during the US regional banking crisis. Rather than spelling disaster for crypto companies, however – as many pundits predicted – the collapse of Silvergate, Signature Bank and SVB, another crypto-friendly bank, seems to have accelerated the industry’s efforts to secure its payments infrastructure.
“The US market’s massive, [the volume of] US dollars is massive, and we were one of the largest networks behind SEN and Signet,” Sharp noted. “So when they disappeared, a lot of that interest came in our direction.”
Despite styling this year’s turmoil as a commercial opportunity for BCB, Sharp emphasized the need to “build in redundancy” and mitigate “concentration risk” if the payments firm is to avoid the fate of Silvergate and Signature Bank.
“We hold all our clients’ money 1:1 in cash … at regulated credit institutions, licensed banks. But banks can fail,” he admitted. “If you have all your eggs in one basket and the bottom falls out of that basket, then you have no eggs … So what we’re building on the BLINC network, on the US dollar side, is [a system] to have multiple banks on the network. So if we have a situation where one bank is in trouble, we have other banks that we can fail over to and keep the network running. We’re starting with one bank in the near term, and we’ll slowly add more and more banks through to the end of the year.”
Regulatory headwinds that have pitted the US Securities and Exchange Commission (SEC) against crypto exchanges Binance and Coinbase are not a concern, he added, because BCB acts solely as a money remitter that’s beholden to – and fully compliant with – specific payments services regulations.
Instead of worrying about government interference, a bigger concern for BCB is tackling the “stigma” surrounding crypto firms in the banking world.
Banking on a change in attitudes
“If you have the word ‘crypto’ or ‘blockchain’ anywhere in your business plan, traditional high-street banks won’t give you a business account,” Sharp explained. “Even some of the neo and challenger banks won’t give you a business account.
“[For] the compliance teams in these banks … there’s still this view that crypto activity is somehow illicit or it facilitates black market transactions, or sanctions evasion. They still feel that there’s a heightened risk of that occurring on cryptocurrency rails, so they just don’t want to deal with these firms.
“Basically, they perceive the risk/reward of that liability as not working in their favor.”
As well as making it harder for crypto firms to manage their own financial affairs, banks often hit consumers with restrictions or interrogations when trying to deposit funds on the cryptosphere – even via licensed channels such as BCB. Talk to most crypto enthusiasts and they’ll describe that as a disingenuous, self-serving attempt by an archaic banking industry to block its customers from accessing a more efficient, more technologically advanced form of digital money. However, Sharp said that concerns about fraud and money laundering aren’t always just a smokescreen for protectionism.
A lack of “standardization and guidance for all firms to follow” is also holding back the industry, he insisted, citing the FCA Handbook as one example. That document tells crypto exchanges operating in the UK that they need to conduct Know Your Customer (KYC) identity checks when on-boarding customers, but it stops short of detailing exactly what that sign-up process should look like.
Without step-by-step guidance from the regulator, crypto exchanges are forced to interpret the rules as best they can – sometimes imperfectly, always inconsistently – giving banks little choice but to err on the side of caution when making risk assessments.
Even so, he believes that responsible crypto firms aren’t getting the recognition they deserve, while the wider crypto industry is being “unfairly targeted” with allegations of rampant illegality.
“The industry has come a long, long way. There are a lot of firms like Crypto.com, Kraken and Coinbase that do the right thing to a very high standard,” Sharp insisted.
“A lot of [crypto] companies are already bank-grade, or are operating at the same level as a [company like] PayPalPYPL: in terms of how to KYC their customers; in terms of how they operate their fiat infrastructure; in terms of the strength of the compliance teams that control their standards … You can’t make a blanket statement – not everyone’s there yet – but the industry, for the most part, is at an acceptable level.”
He added: “In reality, it’s the traditional SWIFT network where most money laundering and terrorist financing occurs … and fraud happens in a variety of different ways on loads of different platforms. The blockchain is not actually very effective [for illicit activity] because it’s public. All the transactions are traceable.”
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