Contents

Introduction

On Monday, along with Plaid, we hosted a discussion to learn about how banks and crypto companies are partnering. Our Co-Founder and CPO, Matt Marcus, moderated the panel, which featured speakers from Plaid and three bank partners that frequently work with crypto companies:

  • Benjamin Richman, Director of Digital Currency at Silvergate Bank
  • Joseph Seibert, SVP of Digital Asset Banking at Signature Bank
  • David Mansfield, CEO at BankProv
  • Bruno Werneck de Almeida, Crypto Lead at Plaid

This journal post will take a closer look at some of the highlights and key learnings from the discussion.

Background

Modern Treasury has integrations with Silvergate, Signature Bank, and BankProv, which means our joint customers who bank with one (or more) of them can access their bank portal and send payments through our web app or API. Each of the three banks also have their own proprietary exchange networks, which facilitate fast, costless, and secure digital currency transactions:

  • Silvergate Exchange Network (SEN) enables digital currency clients to send fiat currency 24/7/365 between Silvergate accounts via their API or online banking portal.
  • Signature's Signet Platform leverages blockchain technology to allow commercial clients to make instant USD payments, 24/7/365.
  • BankProv's ProvXchange enables BankProv clients to transfer money between their accounts in real-time.

Our partnership with Plaid allows for instant account authentication for our mutual customers.

Key Learnings

1. Cryptocurrency companies can benefit from working with banks 

Cryptocurrency companies have to choose the best solution for processing their payments. Between banks and payment processors, there are a number of tradeoffs to consider.

  • Cost: Proprietary exchange networks allow for costless transactions between members of the exchange. Depository institutions don't need to charge fees for payments in the same way that payment processors do.
  • Stability: Because banks are regulated entities insured by the FDIC, they have a high bar for regulatory compliance for their end customers. Establishing a banking partner can engender trust and comfort with clients, who seek a stable home for a volatile industry.
  • Convenience: Each of the proprietary exchange networks is API-driven and tailored for ease of use by developers, and are available 24/7.
2. Onboarding is a detailed process

Banks offer stability and security to their clients and as a result adhere to a strict onboarding process. Given the inherent risk of the cryptocurrency industry, crypto-focused banks need to hold themselves and their clients to a higher standard than that of a typical non-crypto business account. They need to be aware of additional regulations, such as blockchain and wallet policies or certain crypto-specific Anti-Money Laundering (AML) requirements.

While the onboarding approach varies from bank to bank, there are several common checks they perform. Some of the key things banks look for include: 

  • The nature of the business, including the business model (lending, exchange, or OTC desk), expected fund flow and trading patterns, the types of payment rails that will be used, and primary sources and uses of funds for the client's transactions.
  • The company's Compliance programs. This includes the structure of the legal entity, what jurisdictions the business falls under, which regulators oversee their actions, and whether the business has the appropriate licensing for current and future business activities.
  • The personnel and staff of the business, including the backgrounds of key executives, and whether or not there is a Chief Compliance Officer, experienced compliance consultant, and/or a team with expertise in the key pillars of compliance.

Typically, banks take 2-6 weeks to onboard cryptocurrency clients. However, the process may extend longer if increased due diligence is needed.

Though banks may provide feedback during their due diligence process, they are not permitted to design compliance policies for their clients. Instead, they may refer potential clients to compliance consultants.

Once onboarded, clients at these banks can be sure that their counterparties have gone through the same detailed onboarding process, minimizing risk for everyone involved.

3. There's still space for intrabank instant settlement in a world of Real-Time Payments (RTP)

New instant settlement rails like Real-Time Payments (RTP) (and soon FedNow) are becoming more ubiquitous. However, there's benefit to using intrabank instant settlement over more widely available rails, such as:

  • Speed across borders: Payments within the intrabank exchange are settled instantly and with finality, even moving across borders. BankProv could send money from their exchange, which is US-based, to a Mexican-based exchange, to a Mexican bank within a second. When thinking about moving money internationally across different time zones, having a 24/7 settlement tool is vital to instantly transfer liquidity. It's much more convenient than navigating through different wire transfers and correspondent banks.
  • Payment size: RTP and FedNow are tools to help ease settlement for payments under $100,000 per transaction. Both Signet and SEN are in place to reduce payment friction for transactions in the hundreds of millions of dollars.

Reflection

We'd again like to extend our thanks to Silvergate Bank, Signature Bank, BankProv, and Plaid for joining us for our panel, and to all attendees for their thoughtful questions and engagement.

If you have questions about payment operations or want to learn more about how Modern Treasury can help you integrate with banks, reach out to us at banks@moderntreasury.com.

You can also catch a recording of the webinar here.

References

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.