The Challenge Of Opening a Bank Account For Cryptocurrency Startups
Opening a bank account for a Cryptocurrency Startup is nothing less than a nightmare. First of all, many banks don’t like to service companies that in some way are related to cryptocurrency. And if they do service crypto companies, they want them to have a traditional banking account.
Moreover, there are only a few traditional banks that allow cryptocurrency startups to open a bank account with them and, the process might take months to complete. Additionally, the fees charged by these banks are very high.
Issues with traditional banks
Several cryptocurrency entrepreneurs have expressed their frustration over the lack of stable banking services for them.
For instance, Jesse Powell - the founder and CEO of US bitcoin exchange Kraken, recently shared his struggle with a number of financial institutions, including big names like Bank of America and PayPal. In a tweet, Powell said that Bank of America closed Kraken’s payroll account on 30-days notice. And, when Chase closed their account, Powell got to know only after employee checks started bouncing.
To operate his business, Powell then had to use “multiple rented PayPal accounts and started spreading deposits across several banks, cash in safety deposit boxes. Probably a compliance person’s worst nightmare but I basically had to employ the arts of a money launderer to survive.”
A similar experience was shared by Taylor Monahan - the founder and CEO of cryptocurrency wallet service MyCrypto, and Charlie Shrem - the founder of defunct bitcoin exchange Bitinstant. Also stablecoin issuer Tether and crypto exchange Bitfinex experienced a very bad banking struggles.
Times are changing: some small traditional institutions are crypto friendly
Though these experiences were faced years ago, bigger players in the financial world are still hesitant when dealing with a crypto startup. Nevertheless, there are many other, relatively smaller, financial institutions that cryptocurrency startups can turn to.
One such institution is Silvergate Bank, which has come forward to support cryptocurrency firms. Other such banks are Change (a crypto bank based in Estonia and Singapore), Bitwala (a German bank), and Bank Frick Liechtenstein.
And, recently a New York-based Signature Bank has partnered with Bermuda to allow FinTech companies (based in Bermuda) to access U.S Banking services. Bermuda, lately, has seen a surge in the crypto startups.
Even Monetary Authority of Singapore (MAS) has promised to make available domestic banking services to the cryptocurrency startups. Speaking to Bloomberg in October last year, Ravi Menon, the institution’s managing director, said that they are trying to “bring the banks and cryptocurrency fintech startups together to see if there’s some understanding they can reach.”
Also, the state of Wyoming approved a bill recently that supports the creation of “Special Purpose Depository Banks.” The primary objective of these banks will be to offer financial services to the blockchain companies.
The major and easier support comes from FinTech startups
The FinTech startups, on the other hand, are offering much better services, when compared to the traditional and bureaucratic organizations.
One such company is Aave, which recently announced a payment service to boost the mainstream adoption of cryptocurrencies. The service, called Aave Pay, allows users to send coins to the recipient’s bank account. The payment service converts and then transfers the coins in the form of fiat money to the recipient’s bank account.
Such a payment service can be used by cryptocurrency startups to overcome traditional banking limitations. For instance, the startups can use Aave Pay to pay employee salaries directly to their bank account and pay utility bills as well. The service can also be used to pay income taxes.