Building banking relationships and redundant banking rails is essential for crypto and fintech companies. Given the current political, regulatory, and economic climate, there are several challenges that these companies face when trying to build relationships with banks.
Banks are often risk-averse. Crypto and fintech companies are often seen as new and untested, and banks may be hesitant to do business with them for fear of reputational damage or regulatory inexperience. They have different business models making it difficult to understand and assess the risks involved in doing business with them. Of course, there is also the regulatory landscape for crypto and fintech to consider, which is still evolving.
Our Strategic Services Practice team at Wolf & Company works with companies to introduce key stakeholders to any of over 125 banks, domestic and international, which are open to innovation and risk-taking. We help our clients to demonstrate a strong track record of compliance and risk management, often through information technology (IT), anti-money laundering/know your customer (AML/KYC), and other audit and policy developments. We also educate banks about clients’ business models and the potential benefits of working alongside them.
Some of the challenges crypto and fintech companies face when building banking relationships include:
- Regulatory uncertainty: Crypto and fintech implementations are rapidly evolving, and the regulatory landscape is still developing. These changes happen most often during onboarding processes, during election cycles, and due to macro business developments. This can make it difficult for companies to communicate and for banks to assess the risks associated with doing business with crypto and fintech companies.
- Compliance concerns: Crypto and fintech companies are expected to comply within the current regulatory environment, including Bank Secrecy Act (BSA), Money Services Business (MSB), Anti-Money Laundering and Know Your Customer requirements. It is important that companies clearly communicate their policies, practices, and compliance so banks, which are also subject to these regulations, will be confident in working with individual companies.
- Technological differences: Crypto and fintech companies often use different technologies than traditional banks. This can make it difficult for banks to integrate their systems with those of crypto and fintech companies. It is incumbent on companies to communicate these technologies and their integration, so banks and management teams are comfortable with these systems.
- Reputational risk: Crypto and fintech have been associated with some high-profile scams and hacks. Since perception can be everything, management teams must be proactive in communicating business models, risk management, and compliance.
Despite these challenges, there are a few things that crypto and fintech companies are doing to build banking relationships, including:
- Working with regulators to develop clear and consistent regulations for their industries, thereby helping reduce uncertainty and make it easier for banks to assess the risks associated with doing business with crypto and fintech companies.
- Investing in compliance programs to ensure that they are meeting all applicable regulations. This is helping to reduce the risk of non-compliance and make it more attractive for banks to do business with them.
- Developing open banking solutions that make it easier for banks to integrate their systems with the fintech/crypto organization’s by reducing the technological barriers to banking relationships.
- Partnering with traditional banks to offer innovative financial products and services. This helps to build trust between the two industries and make it more likely that banks will do business with crypto and fintech companies in the future.
As the crypto and fintech industries continue to grow and mature, it is likely that the challenges they face when building banking relationships will diminish. However, it is important for crypto and fintech companies to continue to work with regulators, invest in compliance, develop open banking solutions, and partner with traditional banks to build strong and lasting banking relationships.
At Wolf our team is here to support, guide, and set processes that will improve the likelihood of companies establishing long-term relationships in the banking community.
