Banks Shut Out Bitcoin, Technology Companies Embrace It

banks derisk bitcoin

Banks Shut Out Bitcoin, Technology Companies Embrace It

Published Friday, March 9th, 2018

As banks shut out Bitcoin, technology companies are rushing to embrace it. This points to the fact that banks aren’t scaling their technological capabilities at the same pace as their business growth. As a result, they are threatened by cryptocurrencies and reluctant to capitalize on the growing digital currency industry.

Banks Admit They Are Threatened by Bitcoin

In their annual Securities and Exchange Commission (SEC) regulatory filing, Bank of America states, “the widespread adoption of new technologies, including internet services, cryptocurrencies, and payment systems, could require substantial expenditures to modify or adapt our existing products and services.”

Bank of America is also prohibiting their clients from using their debit cards to purchase cryptocurrency, a move they say is to protect their clients from risk. When it comes to cryptocurrency, banks are mostly deterred by the inability to track funds. While some nations are building on the rise of cryptocurrency with their own digital currencies and systems, big banks in the U.S. are not among them. American banks are effectively shutting out both Bitcoin businesses and would-be Bitcoin investors.

De-risking & Financial Inclusion

De-risking refers to the phenomenon of a financial institution terminating their relationship and closing the accounts of clients or merchants they deem “risky.” The move is an attempt to avoid legal liability and regulatory scrutiny. The act of de-risking negatively impacts legitimate money service businesses, including Bitcoin-related business, and their consumers.  

The problem of de-risking has been around since the 1990s, but it’s grown worse since the 2009 financial crisis. As more banks shed their risk, consumers are the ones who lose in the end. De-risking is, by nature, a blanket assessment of an entire geographic location, type of business, or industry. Rather than evaluate risk on an individual basis, banks shut out the entire group.

Recently, the Caribbean was hit by de-risking when correspondent banks terminated longstanding relationships to avoid the “risk” associated with Caribbean banking. This left individuals without a way to send remittances to friends and family abroad. In addition, most money transmitters in the Cayman Islands were forced to close when they lost access to banking. De-risking had both regional and international consequences in this instance.

The borderless and decentralized nature of cryptocurrencies are alluring to those who are typically shut out from traditional banking services. Digital currencies offer a place to hold their money or a way to conduct transactions. When banks de-risk Bitcoin-related business, these end users are shut out once again from the financial services industry.

Bitcoin and Blockchain Embraced by Tech Industry

In Switzerland, regulators are clearing the way for initial coin offerings (ICOs). Swiss Financial Market Supervisory Authority FINMA issued guidelines for how it will handle regulatory framework for initial coin offerings in early 2018. This step to clarify how the current regulatory and legal framework will apply to ICOs makes FINMA the first global regulator to issue detailed analysis on the treatment of ICO organizers.

In their guidelines, FINMA recognizes the power of blockchain technology and the dynamic nature of the digital currency market. By embracing these positives, they are paving the way forward for ICOs, blockchain, and cryptocurrency-based businesses. Blockchain is currently the hot topic in technology circles.

A recent patent filing shows that payments giant PayPal is looking for a way to speed up cryptocurrency payments. In their “Expedited Virtual Currency Transaction System” patent, PayPal details a way to expedite the process of passing payments between a consumer and the merchant. Right now, a payment is sent and there is a waiting period while it’s incorporated into the next block on the network.

PayPal’s patent seeks to create a “secondary purse” or wallet with its own secret keys for buyers and sellers. In this system, personal keys are transferred in the correct amount. Sellers using PayPal have been able to accept cryptocurrency as payment since 2014 and this will greatly improve the efficiency and speed of transactions.

Garrett Camp, a co-founder and chairman of Uber, is currently developing his own cryptocurrency. He is still very much in the initial phase and is actively recruiting experts with the hope of testing the network in late 2018. The non-profit organization, the Eco Foundation, is behind Eco and plans to run their underlying blockchain “verified nodes” rather than anonymous miners.

The reward for mining will be equally distributed across all nodes. This will reduce the energy consumption associated with traditional cryptocurrency mining. New nodes will be added and inefficient nodes will be removed through a peer-review system. The team behind Eco is hoping to blaze a path somewhere in between the centralized banking system and decentralized cryptocurrencies like Bitcoin.

These developments show that the tech industry is investing in digital currency. Whether they are investing Bitcoin-related businesses or they are creating new types of cryptocurrency entirely, their involvement is pushing the industry as a whole forward. One thing is certain: the future of currency is cryptocurrency.

Banking for Bitcoin-Related Businesses

As tech companies and money service businesses work to embrace digital currency and build scalable business solutions, they are hamstrung by a lack of access to Bitcoin banking services. As banks derisk, Bitcoin-related businesses are left without reliable bank accounts. When a Bitcoin ATM loses their bank, they have no way to rotate their working capital.

Bitcoin-related businesses rely on banking services to operate and to serve their customers. BankLine was founded to meet this need and help digital currency-related businesses scale to meet growing demand. In addition to reliable bank accounts, BankLine supports Bitcoin kiosks with nationwide armored cash logistics. This allows Bitcoin ATMs to send and receive cash without being constrained by the geographic network of their bank or armored courier service.

In addition to Bitcoin-friendly banking and cash logistics, BankLine provides compliance support and innovative systems for improving communication between kiosks and their financial partners. Improved communication, complete transparency, and robust compliance bring peace of mind to banking Bitcoin-related businesses. Banks are able to benefit from profitable clients and Bitcoin kiosk operators are able to stay up and running. In the end, the Bitcoin consumer is able to purchase and sell their coins in an efficient and convenient ATM transaction.