As the cryptocurrency market proves too hot for some of the major banks, one of Australia’s new challengers sees an enormous opportunity.
In a new partnership, neobank Volt will provide bank accounts to customers of crypto exchange BTC Markets, rolling out the underlying banking infrastructure to buy and trade digital assets.
The development is the latest offshoot of Volt’s banking as a service (BaaS) strategy, as it positions itself as a ‘white label’ provider of banking services and products to a whole range of companies in need of them.
The partnership, hailed as a ‘world first’ by BTC Markets, will offer crypto investors the valuable financial security of a genuine bank account while speeding up transfers and enabling automated payments.
“The total of all deposits in Volt accounts are covered by protection of up to a maximum of $250,000 per account holder under the Financial Claims Scheme,” Volt co-founder Steve Weston said. “Those things are really important.”
“Quite often, customers won’t have even been aware that, heaven forbid, if an exchange was to fail, the currency they had sitting on it could be at risk.”
Despite the booming domestic appetite for digital assets, Australian banks and policymakers struggle with it, as exchanges urge the government to step in and regulate them.
It has created a unique situation, both at home and abroad, where the market has developed at such an incredible clip that traditional financial institutions have been left trailing behind.
Peak body Fintech Australia recently told a Senate inquiry that at least 25 of its customers had been denied banking services, ostensibly due to the risk of financial crime and money laundering often tied to decentralised currency.
Westpac has been among the most heavily criticised, with customers saying they have been stopped by the bank from simply transferring funds to their trading accounts.
“We’ve heard from traders where they have said their bank has actually called them up and asked, ‘Do you really know what you’re doing transferring money to a digital currency exchange?’. It’s like, how disrespectful can you be?” Weston said.
Weston, a former banker at NAB and Barclays, believes the failure of major banks to get involved is simply a reflection of their risk appetite.
“They’re still remediating past issues and despite some of their people internally telling them they need to understand crypto, it’s just one more issue they don’t want to have to talk to the board or shareholders about,” Weston said. “They just don’t want the hassle.”
Certainly, the memory of Westpac’s $1.2 billion fine last year – the largest in the history of corporate Australia – may have done little to change the stance in the banking sector.
But it has left crypto exchanges, not just in Australia but around the world, facing a lack of support from all kinds of banks, despite their work to provide safeguards in lieu of regulatory requirements.
“This [partnership] is about recognition of the amount of effort that we go to and other exchanges in Australia go to to meet AUSTRAC compliance, which right now is the only obligation that we have,” BTC Markets CEO Caroline Bowler said.
Yet at the same time, the market continues to grow at a rapid pace, as prices soar and customer base expands.
BTC Markets now has 325,000 users who have traded more than $17 billion in assets.
“We’ve seen customers in their early 60s coming into the market in greater numbers and investing much larger sums of money,” Bowler said. “So the need for this kind of infrastructure to be built around it is really important.”
While frustrating for customers and exchanges alike, the situation means there is now a major opportunity for Volt to step into the fast-growing market.
“The amount of feedback we have received about this shows there’s a real interest in this,” Weston said.
“There is no doubt there will be major banks today, who are sitting there, staring out the window saying, ‘I knew we should have built something for these guys earlier.'”
This article was originally published on Business Insider Australia.