Banking as a Service Throws Crypto a Lifeline

Image credit: iStockphoto/Brankospejs

BTC Markets is an Australia-based digital asset exchange with over 325,000 clients who have traded over AUD17 billion since its launch in 2013. Yet, BTC has been continually and successively de-banked by traditional banks.

“Sometimes it has happened with very little notice,” says Caroline Bowler, BTC’s chief executive.

“They tell us that it's nothing we have done; it's just the nature of our business. They just don’t trust us because we are in the world of crypto finance. We have a license with (financial intelligence agency) AUSTRAC, but they couldn’t get comfortable with what we do as a business, and this is an industry-wide issue not just for us.”

Fortunately for BTC, there is an alternative at hand, and it’s the new Banking as a Service model being pursued by some of the new entrants in Australia’s banking industry.

Filling the void

Last week, BTC inked an agreement with Australia’s first neo bank Volt, to provide banking services for BTC clients.

Volt has a banking license that makes it an Authorized Deposit Taking institution. It offers protection up to a maximum of AUD250,000 for each account holder under the Government’s Financial Claims Scheme.

So Volt has all the legal and regulatory properties of a bank but is operating in an entirely new way, providing its banking services in a new relationship with BTC.

From now on, BTC customers will be able to open AUD accounts with Volt and then use those to trade in and out of the BTC platform. Thus, it functions as an on and off-ramp into and out of the BTC business.

Previously, customers have had to move funds out of their accounts and into BTC trust accounts to trade, slowing down the process and creating double handling.

It sounds simple, but it's only the second deal of its kind in Australian financial services after a similar deal struck between banking major Westpac and buy now pay later unicorn Afterpay.

Strategic imperative

As it seeks to grow in the Australian market, Andrew Clouston, Volt’s chief customer and partnership officer, says the deal with BTC was a “strategic imperative” for the bank.  

“We’ve spent a good amount of time platforming our whole banking infrastructure, putting an API on top of that which allows us to distribute our services through partnerships,” says Clouston.

New arrival on the scene, Volt has around 10,000 account holders, so the opportunity to acquire new customers from BTC’s 325,000-strong client base and potentially engage them with other services is a significant client acquisition opportunity. Customers need to hold or move money around, and that is best embedded into the user experience of that third-party provider,” says Clouston.

“We think there is a whole range of partner companies in Australia and around the world who will enjoy providing this kind of customer experience which removes friction, and we hope it is a more enjoyable experience than existing banks.”

Volt also has a lending as a service platform that can be white-labeled for clients and has a partnership with global BaaS aggregator Railsbank to offer its services internationally.

Clouston says open banking, which has been slow in gaining momentum in Australia, can be another catalyst for change and help drive the uptake of its business model.

Decentralizing finance

BTC’s Caroline Bowler said the deal represents a broader trend in Australian finance, what she calls “decentralized finance.”

“Our clients want to take great control over their finances, and this model helps them do that,” she says.

“It enables that through embedding the banking services in the experience.”

She also sees crypto as “opening up a whole new ecosystem of payments, and ways of transferring value,” with arrangements like the Volt deal being the catalyst and the enabler.

It's not only BTC clients who have been frustrated by the attitude of the traditional banks; Australian regulators have too.

In a Senate committee recently, the traditional banks were accused of deliberately de-banking crypto operators and stifling the development of the industry.

The Volt deal will be closely watched, and a key metric will be the number of BTC clients they win as account holders.

The expectation is that the customer acquisition strategy will be a success. This deal is the first of many, not just for Volt but for the growing number of Australian neo banks yapping at the heels of traditional players.

Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends and DigitalWorkforceTrends, and the editor of NextGen Connectivity. His fascination is with how businesses are reinventing themselves through digital technology and collaborate with others to become completely new organizations. You can reach him at [email protected]

Image credit: iStockphoto/Brankospejs